ADM 2320 Lecture Notes - Lecture 8: Market Saturation, Voice Of The Customer, Test Market
9 Dec 2017
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CHAPTER 8
Why do Firms Create New Products?
• New market offerings provide value to both firms and customers.
• Innovation is the process by which ideas are transformed into new products and services
that will help firms grow.
Changing Customer Needs
• When they add new products to their offerings, firms can create and deliver value more
effectively by satisfying the changing needs of their current and new customers or simply
by keeping customers from getting bored with the current product or service offering.
• Sometimes, companies can identify problems and develop products that customers never
knew they needed.
• In other cases, the firms take a well-known offering and innovate to make it more
interesting.
Market Saturation
• The longer a product exists in the marketplace, the more likely it is that the market will
become saturated. Without new products or services, the value of the firm will ultimately
decline.
Managing Risk Through Diversity
• Through innovation, firms often create a broader portfolio of products, which helps them
diversify their risk and enhance firm value better than a single product can.
Fashion Cycles
• In industries that rely on fashion trends and experience short product life cycles—
including apparel, arts, books, and software—most sales come from new products.
Innovation and Value
• New product introductions, especially new-to-the-world products that create new
markets, can add tremendous value to firms.
• Pioneers are new product introductions that establish a completely new market or
radically change both the rules of competition and consumer preferences in a market.
• First movers are product pioneers that are the first to create a market or product category,
making them readily recognizable to consumers and this establishing a commanding and
early market share lead.
• Studies also have found that market pioneers can command a greater market share over a
longer time period than later entrants can.
• There are many reasons that consumer goods fails, but the following are most common:
1. They offer consumers too few benefits compared with existing products
2. They are too complex or require substantial learning and effort before consumers
can use them
3. Bad timing
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Adoption of Innovation
• Diffusion of innovation is the process by
which the use of an innovation, whether
a product or service, spreads throughout
a market group over time and over
various categories of adopters.
•
Innovators
• Innovators are those buyers who want to
be the first to have the new product or
service.
• However, these innovators are crucial to the success of any new product or service
because they help the product gain market acceptance.
Early Adopters
• Early adopters are the second group; they generally don’t like to take as much risk as
innovators but instead wait and purchase the product after careful review.
• Opinion leaders who spread the word to the next big groups: early majority and late
majority. As a result, early adopters are crucial for bringing the other three buyer
categories to the market. If the early adopter group is relatively small, the number of
people who ultimately adopt the innovation likely will also be small.
Early Majority
• Early majority members don’t like to take much risk and therefore tend to wait until bugs
are worked out.
• Its members don't like to take as much risk and therefore tend to wait until “the bugs” are
worked out of a particular product or service.
• When early majority customers enter the market, the number of competitors in the
marketplace usually also has reached its peak, so these buyers have many different price
and quality choices.
Late Majority
• Late majority is the last group of buyers to enter a new product market and when they do
the product has achieved its full market potential.
• By the time the late majority enters the market, sales tend to level off or may be in
decline.
Laggards
• Laggards are those consumers that like to avoid
change and rely on traditional product until they are
no longer available.
Using the Adoption Cycle
• Using the diffusion of innovation theory or adoption
cycle, firms can predict which types of customers
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Why do firms create new products: new market offerings provide value to both firms and customers. Innovation is the process by which ideas are transformed into new products and services that will help firms grow. In other cases, the firms take a well-known offering and innovate to make it more interesting. Market saturation: the longer a product exists in the marketplace, the more likely it is that the market will become saturated. Without new products or services, the value of the firm will ultimately decline. Managing risk through diversity: through innovation, firms often create a broader portfolio of products, which helps them diversify their risk and enhance firm value better than a single product can. In industries that rely on fashion trends and experience short product life cycles including apparel, arts, books, and software most sales come from new products.
