Chapter 9

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use.
Not authorized for sale or distribution in any manner.

This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 9, YOU SHOULD BE ABLE TO:
L Recognize the terms that pertain to

O products and services.
1
L Identify the ways to classify consumer
O and business products.
2
L
Describe four unique elements of
O
services.
3
L
Explain the significance of “newness”
O
and “consumer learning” to new
4
products and services.
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
9-2
LEARNING OBJECTIVES (LO)
AFTER READING CHAPTER 9, YOU SHOULD BE ABLE TO:
L Describe the factors affecting the

O success or failure of a new product or
5 service.
L Explain the purposes of each step of

O the new-product process.
6
9-3
APPLE’S NEW-PRODUCT
INNOVATION MACHINE
Apple CarPlay
Ad
9-4
L
O
WHAT ARE PRODUCTS AND SERVICES?
1 A LOOK AT GOODS, SERVICES, AND IDEAS
Products Services
Goods
• Nondurable
Goods
Ideas
• Durable
Goods
9-5
FIGURE 9-1 Services now contribute about
twice the value to the U.S. gross domestic
product than goods do
FIGURE 9-A The service continuum shows
how offerings can vary in their balance of
products and services
9-7
L
O
2 CLASSIFYING PRODUCTS
Consumer Products
Business Products
9-8
L
O
Consumer Products
• Convenience
Products
• Shopping Products
• Specialty
Products
• Unsought Products
9-9
FIGURE 9-2 How a consumer product is
classified affects which products consumers
buy and the marketing strategies used
9-10
L
O
Business Products
• Derived Demand
• Components
• Support Products
▪ Installations ▪ Supplies
▪ Accessory ▪ Industrial
Equipment Services
9-11
L
O
2 CLASSIFYING SERVICES
Delivery by People or Equipment
Delivery by Business Firms or

Nonprofit Organizations
Delivery by Government Agencies
9-12
FIGURE 9-3 Services can be classified as
equipment-based or people-based
9-13
L
O
3 THE UNIQUENESS OF SERVICES
Four I’s of Services

• Intangibility • Inseparability
• Inconsistency • Inventory
▪ Idle Production Capacity
Product/Service Offering
• Core • Supplementary
9-14
L
O
Assessing and Improving

Service Quality
• Gap Analysis – compare expectations to
the actual experience
• Monitoring Service Failure
• Use market research to
improve
9-15
L
O
Customer Contact Audits
• Service Encounters
• Customer Contact Audit
• A Customer’s Car Rental Activities
9-16
FIGURE 9-B Customer contact audit for a
car rental agency (green boxes = customer
activity; orange boxes = employee activity)
Hertz Ad
9-17
L
O
3 PRODUCT CLASSES, FORMS, ITEMS, LINES, AND MIXES
Product Item
• Stock Keeping Unit (SKU)
Product Line
Product Mix
9-18
L
O
3 PRODUCT CLASSES, FORMS, ITEMS, LINES, AND MIXES
Product Class (Industry

where product belongs)
Product Form (Different

shapes, types)
Crapola Ad
9-19
L
O
MARKETING MATTERS
4
Feature Bloat: Geek Squad to the Rescue!
Geek Squad
Video
9-20
L
NEW PRODUCTS AND WHY
O
4
THEY SUCCEED OR FAIL
WHAT IS A NEW PRODUCT?
Newness:
Compared to Existing Products
Playstation Video
9-21
L
O
4
Newness: The Consumer’s Perspective
• Continuous Innovation
• Dynamically Continuous
Innovation
• Discontinuous Innovation
Newness in Legal Terms

9-22
FIGURE 9-4 The degree of “newness” in a
new product affects the amount of learning
effort consumers exert to use the product
9-23
L
O
4
Newness: The Organization’s Perspective
• Product Line Extension
• Jump in
Innovation
9-24
L
O
4
Newness: The Organization’s Perspective
• Brand Extension
• True Innovation
9-25
L
O
4
Product Line Extensions
Example:
Purina Elegant Medleys
What are the potential benefits and
dangers of product line extensions?
Purina Web site
9-26
FIGURE 9-C What it takes to launch one
commercially successful new product
9-27
FIGURE 9-D What separates new-product
winners and losers
9-28
L
O
5
WHY PRODUCTS & SERVICES SUCCEED OR FAIL
Marketing Reasons for New-Product Failures
• Insignificant Points of Difference
• Incomplete Market and Product Protocol

Before Product Development Starts
• Not Satisfying Customer Needs on
Critical Factors
• No Economical Access to Buyers

9-29
L
O
5
Marketing Reasons for New-Product Failures
• Bad Timing
• Poor Product Quality
• Poor Execution of the Marketing Mix
• Too Little Market

Attractiveness
9-30
L
O
5
What Were They Thinking? Organizational

Problems in New-Product Failure
• Not Listening to the “Voice” of the Consumer
• Skipping Stages in the New-Product Process

• Marketing a Poorly Conceived Product Too
Quickly
• Encountering “Groupthink” in Meetings
• Not Learning Lessons From Past Failures
• Avoiding the “NIH Problem”

9-31
L
O
Fingos & Thirsty Dog/Thirsty Cat
5 Why did these products fail?
9-32
L
O
Monster in My Room and Life Saver
5 Why did these products fail?
9-33
L
O
USING MARKETING DASHBOARDS
5
Which States are Underperforming?
Annual Percent Change in Unit Volume by State
Change in Growth
< 0% 0 to 10% > 10%
9-34
FIGURE 9-5 Seven stages in the
new-product process leading to success
9-35
L
O THE NEW-PRODUCT PROCESS
6 STAGE 1: NEW-PRODUCT STRATEGY DEVELOPMENT
New-Product Process
• Stage Gate Process
New-Product Strategy Development

• Strategic Role Defined
• SWOT Analysis/Scanning Conducted
• Protocol Defined
• Service Development Difficult
9-36
FIGURE 9-E Strategic roles of most
successful new products
9-37
L
O
THE NEW-PRODUCT PROCESS
6 STAGE 2: IDEA GENERATION
Idea Generation
• Open Innovation
Employee and Co-Worker Suggestions
Customer and Supplier Suggestions

Life is Good
• Crowdsourcing
9-38
L
O
Research & Development Laboratories
• Industrial Design
IDEO Gourmet
Café Salad Packaging
• Outside Labs
9-39
L
O
Competitive Products EPS Whole

Tree Havester
Smaller Firms
Universities
Inventors
9-40
L
O
6 STAGE 3: SCREENING AND EVALUATION
Screening and Evaluation
• Internal Approach
▪ Customer Experience Management (CEM)
• External Approach
▪ Concept Tests
9-41
L
O
6 STAGE 4: BUSINESS ANALYSIS
Business Analysis
Prototype
Business Fit
Capacity Management Google Driverless Car
Off-Peak Pricing
9-42
L
O
6 STAGE 5: DEVELOPMENT
Development
• Example: Google’s
Driverless Car
• Service Encounters
and Delivery
• Safety Tests
9-43
L
O
6 STAGE 6: MARKET TESTING
Market Testing
• Test Marketing
• Standard Test Markets
• Controlled Test Markets
• Simulated Test Markets (STMs)
• When Test Markets Don’t Work

9-44
L
O
6 STAGE 7: COMMERCIALIZATION
Commercialization
• Regional Rollouts
Burger King’s French Fries
Risks with Grocery Products

• Slotting Fee
• Failure Fee
9-45
L
O
6 STAGE 7: COMMERCIALIZATION
Speed as a Factor in New-Product Success
• Time to Market (TtM)
• Parallel Development
• Fast Prototyping
9-46
VIDEO CASE 9
X-1: BREAKING THE BARRIERS OF SOUND
WITH NEW-PRODUCT DEVELOPMENT
X-1 Video Case
VIDEO CASE 9
X-1
1. What are the points of

difference, or unique attributes,
for X-1 products?
2. What are X-1’s primary target

markets?
VIDEO CASE 9
X-1
3. Describe the new-product

development process used
by X-1. What are the
similarities and differences
to the process described in
Figure 10-3?
VIDEO CASE 9
X-1
4. Which of the eight reasons for

new-product failure did X-1
avoid to ensure success of
X-1’s products?
5. Identify one new-product idea

you would suggest that X-1
evaluate.
IN-CLASS ACTIVITY 9-1
CUSTOMER CONTACT AUDIT
FOR A SERVICE
Customer contact audit for a car rental (green
boxes = customer activity; orange boxes =
employee activity)
IN-CLASS ACTIVITY 9-2
USING METHOD 6-3-5 TO FIND

NEW-PRODUCT IDEAS
FOR MAGNETIC POETRY
ICA 9-2
Magnetic Poetry’s Little Boxes of Words
Example:
Use Method 6-3-5 to find New Product Ideas
For Magnetic Poetry’s
Little Boxes of Words
Magnetic
Poetry
Product
A product is a good, service,

or idea consisting of a bundle of
tangible and intangible attributes
that satisfies consumers’ needs
and is received in exchange for
money or something else of value.
9-58
Services
Services are the intangible

activities or benefits that an
organization provides to satisfy
consumers’ needs in exchange
money or something else of value.
9-59
Consumer Products
Consumer products are products

purchased by the ultimate
consumer.
9-60
Business Products
Business products are products

organizations buy that assist in
providing other products for
resale. Also called B2B products
or industrial products.
9-61
Four I’s of Services
The four I’s of services consists

of the four unique elements that
distinguish services from goods:
intangibility, inconsistency,
inseparability, and inventory.
9-62
Idle Production Capacity
Idle production capacity occurs

when the service provider is
available but there is no demand
for the service.
9-63
Product Item
A product item is a specific

product that has a unique brand,
size, or price.
9-64
Product Line
A product line is 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.
9-65
Product Mix
A product mix consists of all of

the product lines offered by an
organization.
9-66
New-Product Process
The new-product process

consists of the seven stages an
organization goes through to
identify business opportunities
and convert them to salable
products or services.
9-67
Customer Experience Management
(CEM)
Customer experience
management (CEM) is the
process of managing the entire
customer experience within the
firm.
9-68

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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use.

Not authorized for sale or distribution in any manner.

L Recognize the terms that pertain to

L Describe the factors affecting the

L Explain the purposes of each step of

Delivery by People or Equipment

Delivery by Business Firms or

Delivery by Government Agencies

Four I’s of Services

▪ Idle Production Capacity

Assessing and Improving

Customer Contact Audits

• Customer Contact Audit

• A Customer’s Car Rental Activities

• Stock Keeping Unit (SKU)

Product Class (Industry

Product Form (Different

Compared to Existing Products

Newness: The Consumer’s Perspective

Newness in Legal Terms

Newness: The Organization’s Perspective

• Product Line Extension

Newness: The Organization’s Perspective

Purina Web site

Marketing Reasons for New-Product Failures

• Insignificant Points of Difference

• Incomplete Market and Product Protocol

• No Economical Access to Buyers

Marketing Reasons for New-Product Failures

• Poor Product Quality

• Poor Execution of the Marketing Mix

• Too Little Market

What Were They Thinking? Organizational

• Skipping Stages in the New-Product Process

• Not Learning Lessons From Past Failures

• Avoiding the “NIH Problem”

New-Product Strategy Development

Employee and Co-Worker Suggestions

Customer and Supplier Suggestions

Research & Development Laboratories

Competitive Products EPS Whole

Screening and Evaluation

▪ Customer Experience Management (CEM)

Capacity Management Google Driverless Car

• Standard Test Markets

• Controlled Test Markets

• Simulated Test Markets (STMs)

• When Test Markets Don’t Work

Burger King’s French Fries

Risks with Grocery Products

Speed as a Factor in New-Product Success

• Time to Market (TtM)

X-1 Video Case

1. What are the points of

2. What are X-1’s primary target

3. Describe the new-product

4. Which of the eight reasons for

5. Identify one new-product idea

USING METHOD 6-3-5 TO FIND

A product is a good, service,

Services are the intangible

Consumer products are products

Business products are products

The four I’s of services consists