MM 3rd Edition Dawn Iacobucci Solutions Manual

MM 3rd Edition Dawn Iacobucci
Solutions Manual
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MM – Instructor Manual
CHAPTER 8 – NEW PRODUCTS

KNOWLEDGE OBJECTIVES
1. Understand the importance of new products.

2. Identify the process of new product development.
3. Understand the stages of the product life cycle.
4. Explain the diffusion of innovation and its implications.
5. Stress the relationship between new products and marketing strategy.
6. Examine trends in the global marketplace and their potential impact.
CHAPTER OUTLINE
▪ Why are New Products Important?

▪ How Does Marketing Develop New Products For Their Customers?
▪ What is the Product Life Cycle?
▪ How do New Products and Brand Extensions Fit in Marketing Strategy?
▪ What Trends Should I Watch?
▪ Managerial Recap
1. Why are New Products Important?
This section relates to knowledge objective #1
Companies are ever-evolving. The primary way that companies make changes is by offering
“new and improved!” goods and services to customers. Companies seek to improve their current
products for numerous reasons: a simple point of corporate pride, to be consistent with an image
as being innovative, as an effort to better satisfy current customers or attract new customers, or to
stave off competition.
Change is inevitable. Change is good. It’s been shown that new products increase a company’s
long-term financial performance and the firm’s value.
2. How Does Marketing Develop New Products For Their Customers?
Top-down: The process of developing new products depends first on a company’s culture. Some
companies take a nearly exclusively top-down approach, beginning with idea generation,
proceeding to design and development, and then commercialization. This approach is found
frequently among companies with strong engineering orientations, pharmaceuticals and bio-
medical firms, financial services, and many high-technology companies. The approach follows
the “build a better mousetrap” philosophy. A top-down approach is also referred to as the “inside
out” approach because the idea comes from within the firm and the feedback is received later in
the process from outside sources. The opposite of this approach is referred to as “co-creation”
(with the customer).
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© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Marketing: In marketing-oriented companies, customer feedback is sought at most phases of the

new product development process.
Figure 8.1 New Product Development Process
This figure shows that for most products the new product development process is complicated.
The entire process requires a great deal of refinement, including winnowing of ideas, and
tweaking them in-house. In the early stage of idea generation, knowledge of customer needs and
wants interact with corporate and marketing strategies to see what potential new products make
sense for the firm. Marketing research should also be involved in all the refinement phases, and
in the decisions about the marketing mix that must be made as the launch approaches. All the
marketing components are treated holistically from the beginning of the process till the launch,
thus, as the product concept is refined, so are decisions about retail outlets, price points, etc., in
order to offer the customer a consistently positioned product.
Idea Creation and Market Potential
Figure 8.2 Where Do New Ideas Come From?
This figure lists out some of the sources of new ideas.

Ideas can come from observing social (or cultural or economic) trends, from listening to
customers, your sales force or your frontline service workers. The typical method of idea
generation begins with brainstorming. After many ideas have been generated and sketched out,
the “in-house winnowing and refinement” begins.
Ideas are screened for their plausibility in construction, compatibility with company goals, as
well as their likelihood of success with customers.
Concept Testing and Design & Development
At this stage, the company has a number of ideas that it thinks might work, and it is time to get
customers’ feedback as to which ideas sound most promising using focus groups or web surveys.
In focus groups 2-3 groups (per segment) of 8-10 target customers are invited to see the concepts
and offer feedback. The discussions begin by asking customers to describe their uses of the
product in this category. The concepts might be described verbally and through visual aids.
Competitor’s products can also be provided as a point of discussion. A conjoint procedure can
also be run. In a conjoint study, different combinations of attributes are put together and
compared and the customer is asked which product combination sounds best, next best, and so
on. This study helps the marketer derive the attribute that matters more than others. A second
round of refined-concept testing might occur if any ambiguities remain. When the company is
confident about which product to develop, it begins to do so.
Beta Testing
A beta version of the product is made available for trial and consumption. The product is used in
the consumer’s home, or in as similar a setting as possible to simulate a real-world purchase
decision and evaluation, for more accurate forecasting later. At the same time, marketing
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materials should also be developed. Thus, while products are being shown to the customer for
their reactions, advertising copy is also shown to them, price points are made clear, distribution
and availability are explained, etc. The marketing manager gains enough evidence on customer
potential and the product undergoes repeated refinement. Now the product can be tried in the
market, on a small scale, before a more expensive full-scale commercial rollout.
Area test markets were once used frequently. But these days they are not used much because
they are expensive.
In electronic test markets, a sample of metropolitan areas is selected, and within each market,
some households are designated to be “test” and others to be “control.”
Today, simulated test markets are the popular means of pre-market launch tests. A customer is
recruited to go to an office in the mall where they are given a budget and have an opportunity to
buy the new product, which is offered among competitors’ or related products. Virtual grocery
store aisles are displayed that provide the same information the customer would see on a typical
trip to the grocery. The marketer then observes how often the customers select the new product
in the pseudo-real context. The customers are then asked to fill out a litany of survey questions.
These customer data are then used as inputs to forecast sales.
TEACHING NOTE: The entire class can be divided into groups of 5-10 students. Students
can be asked to think of a product (new or rejuvenated) that they would like to introduce into
the market. They can explain how they would test the concept and what test markets they
would choose. These exercises will help students better understand the importance of the steps
involved in the new product development process.
Launch
In the final steps towards commercialization, both time and money matter.
Forecasting: After completion of the test marketing, the customer data is used in an attempt to
predict the product’s likely success. If the predictions of sales are not promising, this stage is the
last opportunity for the company to abort before launching. If the predictions are promising, the
company will proceed to commercialize.
The goal of forecasting is to estimate the sales potential “$SP.” The first estimate needed for this
is “MP,” the market potential that is, how many units might possibly be sold. Secondary data or
other relevant benchmarking data are used. Next, “PI,” the estimate of the purchase intention, or
the likelihood that the target segment will buy the product has to be determined. This number
comes from the most recent marketing research that was conducted. Finally, the component that
is under the company’s control is “Pr,” the price the company intends to charge has to be
considered. All these are put into the equation: $SP = MP x PI x Pr.
Timing: New product development can move along fairly speedily for straightforward brand- or
line-extensions in the context of a mature consumer packaged goods company, but in other
settings, the development process can seem torturously slow. The text uses the example of
pharmaceutical drugs to illustrate the importance of time.
TEACHING NOTE: Cadillac Cimarron, Apple’s Newton, Burger King’s veal

parmesan, Polaroid instant home movies, and Mattel’s Aquarius are some products that
failed. Students can be asked to research these products and discuss their findings in
class. Why did these products fail and how could this failure have been avoided? 3
3. What Is The Product Life Cycle?
The product life cycle is a popular metaphor in marketing to describe the evolution and duration
of a product in the marketplace. The stages within this lifecycle are: market introduction, market
growth, maturity, and decline. Sales and profits behave predictably during the different phases,
and the marketing actions that are thought to be optimal during each phase are also clearly
prescribed.
Figure 8.3 The Product Life Cycle (PLC)
Market introduction: During this phase a new product (good or service) is brought into the
marketplace with heavy marketing spending. Promotion techniques used include advertising,
samples, coupons, etc. Strategically, prices might start low (penetration) but they often start high
(skimming) in order to recoup development costs. The firm uses limited distribution and sales
are also low.
Market growth: This phase is characterized by accelerated sales, rise in profits, stronger
customer awareness, greater distribution channel coverage, and entry of competitors. The firm
might be able to begin increasing prices. Advertising is intended to persuade customers as to the
brand’s superiority compared to competitors.
Market maturity: During this phase the advertising continues to persuade customers about the
brand’s relative advantages and serves as a reminder to buy the product; products may proliferate
to a fuller product line to satisfy more segments of customers; there is more competition; sales
grow but profits decline; strong competitors gain market share and weaker firms begin to fall out
of the marketplace; and the product offerings of different firms often begin to homogenize.
Instead of reducing prices the firms should try to find new benefits and either increase, or at least
maintain current prices.
Market decline: This phase is characterized by declining sales and profit. New products start
replacing older ones. The firm may divest, harvest, or rejuvenate the old product.
The lengths of product life cycles vary a lot. The length of product-category life cycles tends to
be longer than those of individual brands.
TEACHING NOTE: Students can be asked to give four different examples of products that are
in the four different phases of the product life cycle. Students can be asked to give their
opinions on the product in the market decline phase: whether the company should divest,
harvest, or rejuvenate the product and the reasons behind their choices. This will help them
understand the product life cycle concept better and also give them an insight into the
importance of marketing decisions that are to be taken during the market decline phase.
Diffusion of Innovation
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In addition to the marketing actions underlying the product life cycle, marketers have also
developed a theory about what customers are doing during these phases as well.
Marketers are of the opinion that when a new product is introduced the person to try it first goes
and shows it to others; the others appreciate it, buy it, and then tell others. This word-of-mouth or
“viral marketing” helps activate the process of the diffusion of innovations.
Figure 8.4 Diffusion of Innovation
The figure shows the diffusion process as a normal curve and partitions the customer base into
five groups. The “innovators” are the first 3-5% who like to try new ideas and are willing to take
risks. The “early adopters” are the next group (10-15%) who are even more influential as opinion
leaders, primarily because they are a bigger group. The “early majority” (34%) are more risk
averse than the first two groups. The “late majority” (34%) are even more cautious, often older
and more conservative, and wish to buy only proven products. The final group, the “laggards” or
“non-adopters” (5-15%) are the most risk averse, skeptical of new products, and stereotypically
lower in income.
TEACHING NOTE: Students can be asked to discuss three different instances where they
played the role of innovator, early adopter, and non-adopter. They can be asked to elaborate
the factors that influenced them during each stage of diffusion. Their answers may be similar
to the following: they felt like it, they saw their friends use it, they did not hear good reviews,
etc. This interaction will help them better understand the diffusion of innovation process.
Figure 8.5 Cumulative Diffusion
The curve of new adopters at each point in time can be recast to show cumulative sales as the S-
curve shown in this figure. The point at which the sales rate increases rapidly is determined via
calculus as the point of inflection in the curve. This point is also known as the “tipping point.”
Marketers forecast sales using this logic.
Figure 8.6 Model of Diffusion
In the equation given in the figure, nt = [ p + q (Nt – 1 / M)] (M – Nt – 1), we are trying to forecast
nt, i.e., the number of units we will sell during time period, t. Nt-1 represents the number of units
we have sold so far (cumulative sales in units). M is the max on the likely market potential. The
term on the right, (M - Nt-1) means, how are we doing so far: what is the difference between what
we could sell (M) and what we have sold so far (Nt-1). p is called the coefficient of innovation—
it’s the likelihood that someone will buy or adopt the new product due to information obtained
from the marketer. q is the coefficient of imitation—the likelihood that someone will buy or
adopt the new product due to word-of-mouth information obtained from another consumer.
There are two different ways the diffusion model has been used. First, we can observe early sales
data, fit the model, and make predictions about the future. Alternatively, we can use past results
on products similar to ours and plug in those numbers to make predictions about the future even
before launching the product.
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The imitation effect (q) is usually bigger (p:q is about 1:10). The percentage of “innovators” and
“early adopters” (the customers who are driving p) is about 10-15% of the market, whereas the
remainder of the market (the majority, etc.) is 85-90%, and they are driving q. Marketers can
speed up innovators (make p bigger) by introducing price decreases early, or speed up imitators
(make q bigger) by introducing price decreases later.
Marketers interact with customers throughout these phases. During new product launch, they
heighten awareness through advertising. In the diffusion process, word-of-mouth increases the
size of q, the imitation effect.
4. How Do New Products and Brand Extensions Fit in Marketing Strategy?
A company can begin its new product plan internally, by identifying the corporate and marketing
missions and objectives to be achieved via the new product or service. The company should also
remember that customers are important in the feedback they provide in the new product
development process. A number of factors influence the customers’ acceptance of new products
and the diffusion of the innovation throughout the marketplace. Consumer acceptance tends to be
higher when the new product:
• has a clear relative advantage over existing products
• is compatible with the customer’s lifestyle
• is not overly complex, or the complexity is masked by a user-friendly interface
• easily tried or sampled, to facilitate initial assessment
Competitor analysis is also essential. Competitor analyses take the form of identifying which
industries and companies are truly competitors, and guesstimating what their likely reactions will
be.
Most companies offer multiple product lines, so they constantly balance the strategic needs of
products at different points in their life cycles.
Much like the personalities of people in the diffusion of innovation process, companies also vary.
Some companies are innovators, whereas others are reactors.
Research shows that the first to market is often the first to fail because a new concept takes
awhile to sink into the minds of customers. By comparison, first movers may have advantages in
launching “incrementally new” products, because there is less risk. In either case, after the first
firm, the next few “early follower” firms have approximately the same survival risks when
launching either really new or incrementally new products. Next generation products are easier
to launch because there is an existing customer base, channels of distribution, and much more
predictability.
Strategic Thinking about Growth: The strategic paths to growth that marketers typically talk
about may be classified by whether you stick to your current product mix and take it to new
target segments, or do you generate altogether new products.
Figure 8.7 Growth Strategies
This figure shows the matrix of growth opportunities.
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Companies use market penetration when they try to sell more of the same stuff to the same
customers. Companies strive for more sales by suggesting new ways to use the product.
Product development is for the company who wishes to be innovative. The company offers new
or modified products to the current customer base to keep them happy.
Market development is a path the company takes when it is settled on its product mix and thinks
that there are more segment opportunities to target. The product may remain the same, but to
reach the new target, the company might need to expand its channels, and modify its promotional
communications to create a new image for that new target.
Diversification is the toughest of the four strategies because the company tries to go after new
customers with new products.
5. What Trends Should I Watch?
It is important to keep an eye on how the world is changing and the directions things are going
because trends form the context in which all the new products forecasting is occurring. There are
demographic, lifestyle, and cultural trends that can boost or constrain the success of a new
product.
General noteworthy trends include: the aging of the American and Western European population;
the rise of Hispanic population in the U.S.; the growing wealth of the American population; the
growing concern for the environment and corporate social responsibility; and the cultural
differences.
The U.S. should also analyze the market more closely in Brazil, Russia, India, China, Egypt,
Mexico, Poland, South Africa, South Korea, and Turkey.
TEACHING NOTE: Discuss in detail, the importance of culture on product success and
failures with examples.
6. Managerial Recap
New products are crucial to a company’s growth.
▪ To develop new products, marketers go through a process: from idea generation to testing
the market potential, to concept testing, design and development, then beta-testing, and
ultimately the launch.
▪ Marketers find it important to reinvigorate along existing product lines. Reinvigoration
along product lines is important because products evolve through a life cycle: from
introduction, to growth, maturity, and decline; each stage is recognizable by its sales and
profitability, and each stage carries standard recommendations for the 4Ps.
▪ They use different models to forecast sales and also study current trends. Most include
factors that reflect word-of-mouth or buzz marketing. Information technology is
facilitating viral marketing.
SUGGESTED ANSWERS TO MARKETING PLAN QUESTIONS

Encourage students to download an Excel ® spreadsheet on the book’s website at
www.cengagebrain.com that contains all of these Chapter 17 tables to assist them in developing
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a marketing plan. A set of marketing plan questions is provided in the Instructor’s Manual as a
guide to help students develop a marketing plan as they take the course and work through the
chapters. By chapter 17, all of the pieces will have come together and created a marketing plan
if the students work through each section as they study each chapter. The Marketing Plan tear-
out reference card in the student edition of MM serves as a chapter guide for the students to
know when to fill out each section of the Marketing Plan.
Product: fill in descriptions here:

Choose high-end quality or basic-quality level: Product1
Use conjoint on target segments to determine primary attributes/features: Product2
What are our brand associations, and what do want to trade in/out: Product3
Where are we in the product life cycle; is it time to jumpstart: Product4
Take the new products perspective of this chapter and build on the answers you compiled in
Chapters 6 and 7.
Product: fill in descriptions here:
Choose high-end quality or basic-quality level: Product1
This example has elected to pursue a high-end quality energy drink. This is due to the reasoning
that the target group (women) would be more accepting of a quality product rather than a
lesser quality-lower priced product. This may in part be due to potential resentment of having a
low-quality product made for directly to them. “Complete Energy” (Total Energy was rejected
due to potential conflict with the cereal brand “Total”) is an energy drink for today’s active
woman. In today’s frenetic, multi-tasking world, women need an energy supplement formulated
especially for them. Complete energy is that drink. The description would continue to detail:
taste, number of calories and carbohydrates, nutrients, and caffeine level. “It gives you the kick,
without the crash.”
Use conjoint on target segments to determine primary attributes/features: Product2
Primary attributes could be: flavor, serving size (8, 12, 16 or some other size), amount of
caffeine, nutritional supplements, type of sweetener (sugar, substitute), caloric level, package
type, and price.
What are our brand associations, and what do want to trade in/out: Product3
It would appear that possible brand associations the product marketers would want would
include: strength vs. femininity (which do NOT have to be mutually exclusive), active vs.
passive, endurance vs. quickness among others. The product wants to distinguish itself from the
more masculine products on the market, yet should appeal to “strong, independent, successful
women.” Another key trade-off is between the speed at which the energy boost will kick in
versus the duration of the effect. For other product categories, students need to think in terms of
competitive advantage: is the product cheaper, better, or different. How do those strategies
translate in to brand meaning and associations among customers. Again, encourage students to
ask others what they think. A simple and effective procedure is to create a semantic differential
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and have students ask others what words they think most relate to the product or product
category. Alternatively, a simple word association test may also be beneficial.
Where are we in the product life cycle; is it time to jumpstart: Product4
Depending on approach either a) new product concept (yet to be tested and launched) or if
existing most likely in the late growth stage as the energy drink market still has double digit
annual growth. For other product categories, have students conduct secondary research to
determine if they can find such things are number of years on the market, annual sales volume
(both unit and dollar) for the past several years. These could provide rough approximations of
where the product is in the product lifecycle.
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
1. Consider the trends described in the chapter (e.g., aging, heightening environmental concern,
or say China). How will each affect the business you are in (or were in before coming to
business school)?
Answer:
Obviously this will vary a lot, but each student should be encouraged to provide at LEAST
one idea regarding each trend for their industry.
BUSPROG: Reflective Thinking
Tier II: DISC: International Perspective
Tier III: MBA: Generative thinking
Bloom’s: Analysis
Topic: What Trends Should I Watch?
Difficulty: Challenging
2. Make a list of three of your most favorite brands. What would be a great brand-, or line-
extension that you would like to see developed as a new product?
Answer:
Make a list of brands students like—then have another list of products, and see which
extensions make sense. The list might include: sports car, pudding, athletic shoes, airline,
and retail bank. Given that you have no control over the brands elicited, it could become
kind of fun (and funny), e.g., an airline by Gatorade?
Tier II: DISC: Product
Bloom’s: Analysis
Topic: How Do New Products and Brand Extensions Fit in Marketing Strategy?
Difficulty: Moderate
SUGGESTED ANSWERS TO MINI-CASE QUESTIONS: WILD FOODS
1. They’re assuming that because birds chase mice in the wild, then canned mice will appeal to
shoppers on behalf of their pets. Hmm.
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Tier II: DISC: Customer

Bloom’s: Analysis
Topic: How Does Marketing Develop New Products For Their Customers
2. Start with the product itself. Also, no info on pricing (high for premium?), all pretty loosey
goosey plans thus far.
Bloom’s: Analysis
3. Research on the product with the pets, and research on the concept with the owners/shoppers.
Tier II: DISC: Research
Bloom’s: Analysis
SUGGESTED ANSWER TO ONLINE MINI-CASE QUESTIONS: NEW PPRODUCTS:

THINK INSIDE THE BOX
A recent Harvard Business Review article, “Breakthrough Thinking from Inside the Box”
(Coyne, Clifford & Dye) says, "don't worry about thinking outside the box.” Creativity is not
always necessary in developing new products. Instead focus on solving problems. For example,
the authors ask, “Do any customers need more or less service attention than others?” Online,
some websites allow the tailoring of clothing (blue jeans, blazers, swimsuits). Alas, many users
are not Internet-savvy, or don’t really know how to take their own measurements (or enter
measurements that are ideal rather than real), etc. Then they receive the clothes, which don't fit.
What might your marketing team do, online or off, to avoid such numerous and predictable
customer errors?
Another question they ask is “How is our customer base changing?” Say you run a small
chain of restaurants that are mainstream, with traditional Americana kinds of food and ambience,
and the company does very well (customers set up Facebook pages for your burgers, etc.). As
your city grows, you see a large influx of Hispanic families to your south (from Mexico and the
Dominican Republic) and a group of Bhutanese refugees settling to your northeast. Needless to
say, hamburgers and fries aren't the main fare of either group. How do you modify your menu to
appeal to your new potential customers? How do you learn what to do?
The encouraging thing about the perspective offered in this article is that people don’t have to be
“creative” to nevertheless come up with “creative” ideas for their brand or company. A class
discussion might begin with the students writing down their answer to: a) “Do you think you’re a
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creative person?” and b) “List some examples of when you’ve used your creative skills.” I am
recommending they write down these answers because while many people will want to say “yes”
to (a), in fact, few people will be able to list that many things for (b). Once they’ve done this, you
can ask people to offer something they listed in (b). Follow up with, “Do you remember how you
came up with that idea?” And then mention this HBR article that says, you don’t have to be
creative per se, you just have to think about products from a customer’s point of view, and try to
solve their problems.
Specific questions from the case regarded the tailored clothing. The marketing team might want
to send a measuring tape and instruction pack to first time customers, or prepare a pdf that when
taped page-to-page effectively functions the same way. Customers might also be informed that
“This shirt tends to run large,” or something, and they should also be made to click on several
screens that say they understand that the proper measurement is their responsibility and if a
garment doesn’t fit, it’s not the fault of the company (or some such legalese).
For the question, “How is our customer base changing?” for the restaurants, there’s no reason
that new foods couldn’t be test-marketed in the current restaurants, or that some taste-tests and
interviews couldn’t be conducted at the ethnic grocers, to calibrate their tastes and your menu
offerings, and to enhance awareness of your chain.
© Cengage Learning 2013
VIDEO CASE & DISCUSSION QUESTIONS
Smart Car
Tiny car, tiny price tag, tiny gasoline bill. The Smart Car, made by Daimler’s Mercedes Car
Group in Hambach, France, first appeared on U.S. roads in 2008, just as prices at the gas pump
were hitting record highs week after week. The timing could not have been better. Tired of
emptying their wallets every time they filled their gas tanks, many U.S. drivers were thinking
about downsizing from a big sport utility vehicle or pickup truck to a smaller vehicle. But were
they ready for a 106-inch-long car that seated only two people? Daimler was ready to find out.
The Smart Car had a good track record in other parts of the world. From 1998 to 2008, Daimler
sold more than 900,000 Smart Cars in Europe, the Middle East, Asia, Australia, Mexico, and
Canada. The car was cute, nimble, and unconventional—a good size for getting through
crowded, narrow city streets and fitting into any tight parking spot. Not only was the purchase
price highly affordable, but the excellent fuel efficiency made the car especially popular in
countries where gas prices were generally high.
To bring the Smart Car to the United States, Daimler redesigned the body and engineering to
meet U.S. safety standards. It added six inches to the car’s length and included four air bags, an
antilock braking system, a collapsing steering column, and other safety features. It also installed
a fuel saving 71 horsepower engine so that the Smart Car would go about 40 highway miles on
a gallon of gasoline.
Daimler set the list price of the Smart Fortwo Pure model—the basic version of the two-
seater—at $11,590. The list price of the Smart Fortwo Passion Coupe, equipped with more
features, was $13,590. The list price of the Smart Fortwo Passion Cabriolet, a convertible with
leather seats and additional features, was $16,590. Buyers had the option of ordering extras, like
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a metallic-paint finish or an alarm system, for an additional fee. Keeping the list price as tiny as
the car allowed Daimler to build market share quickly.
Rather than selling Smart Cars through its regular dealer network, Daimler contracted with the
Penske Automotive Group to handle distribution and sales. In another unusual move, Daimler
set up a website to let buyers reserve the model of their choice and choose from six interior
colors and six exterior colors on the car body’s removable panels. Three of the exterior colors
were offered as part of the purchase price, while the three metallic exterior colors were offered
at an extra cost. The $99 reservation fee was applied to the buyer’s purchase price once the
ordered model became available. By the time Smart Cars arrived in U.S. showrooms, 30,000
people had paid for reservations.
To build customer interest prior to the U.S. launch, Daimler sent a number of Smart Cars on a
50-city U.S. tour. Nearly 50,000 members of the media and prospective car buyers took test
drives. Although many reporters couldn’t resist poking fun at the tiny car (USA Today called it a
“breadbox on wheels”), they all noted its high fuel efficiency and low purchase price. Initial
demand was so strong that even buyers who had reserved their cars well in advance had to wait
months for delivery. A few U.S. customers who didn’t want to wait paid as much as $39,000 for
European Smart Cars adapted to meet U.S. safety and emissions standards.
Then gasoline prices fell from their record-high levels and the global economy plunged into
recession. By 2009, the downturn was so severe that car sales plummeted across the board as
U.S. consumers and businesses clamped down on buying. The combination of significantly
lower gas prices and a sluggish economy put a serious dent into U.S. sales of the Smart Car. To
reignite customer interest, Daimler offered low-interest financing and, for the first time, its U.S.
dealers discounted the car’s retail price. In 2010, the company also introduced a limited edition
electric Smart Car to appeal to buyers interested in ecofriendly alternatives to traditional gas-
driven cars.
Today, Daimler continues to face intense competition in the small-car segment. Looking ahead,
what else can it do to accelerate purchases of its stylish Smart Car without depending on
constant discounts, rebates, and other price-cutting measures?
1. What methods did Smart USA use to test market the Smart Fortwo car among
prospective customers?
Answer:
Smart USA used two primary methods to test market the Smart Fortwo car to prospective
American customers. First, Smart USA provided detailed information about the vehicle
to prospective customers through a reservation program. The reservation program
enabled Smart USA to both build a data base about potential customers and enable those
potential customers to receive detailed information about the Smart Fortwo cars so they
could move ahead in the sales process while the dealer network was being established.
This approach not only served to test market the Smart car but also facilitated further
customer contact. Second, Smart USA conducted a road tour that was extremely well
received. On this 50-city road tour in 2007, the Smart Fortwo vehicles were displayed
and promoted and 50,000 prospective customers took test drives. As testimony to the
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effectiveness of the road tour product testing, 77% of prospective customers who took a
test drive wanted to be contacted by a dealer, and 92% could envision themselves driving
a Smart car.
BUSPROG: Analytic
Tier III: MBA: Managing strategy and innovation
Bloom’s: Analysis
Topic: How Do New Products and Brand Extensions Fit in Marketing Strategy?
2. What trends are influencing the market potential of the Smart Fortwo car?
Answer:
Four major trends have converged to create a strong market opportunity for the Smart
Fortwo car. First is the societal movement toward lessening one’s carbon footprint on the
planet. Second is the associated “green movement” that many people are embracing in
their personal lives and which increasingly impact their work lives through the initiatives
of environmentally progressive organizations. Third is the concern about the
sustainability of life and lifestyles. Fourth is the escalating price of fuel. Together, these
four, not unrelated, trends are influencing more and more consumers to switch to smaller,
more fuel efficient vehicles for transportation. This presents a marvelous marketing
opportunity for Smart USA.
BUSPROG: Analytic
Tier III: MBA: Managing strategy and innovation
Bloom’s: Application
Topic: What Trends Should I Watch?
Difficulty: Easy
3. How does Smart USA utilize buzz marketing?

Answer:
Buzz marketing refers to “the notion that some new products are newsworthy ⎯ and they
create buzz.” Smart USA capitalizes on the attention generated by the Smart Fortwo car
through the use of a courtesy card program that the company has set up for current
owners of the vehicle. This vehicle tends to attract a lot of attention from people on the
street when its owners are out and about. The owners often talk with the interested people
and answer their questions. To capitalize on this phenomenon, Smart USA provides
current Smart car owners with courtesy cards that they can hand out to interested people
who are asking questions. The information content of these courtesy cards direct the
questioners to appropriate contact people at Smart USA; thereby appropriate marketing
initiatives can be activated.
BUSPROG: Analytic
Tier III: MBA: Knowledge of media communications and delivery
Bloom’s: Application
Topic: What Is The Product Life Cycle?
13
Sources: Chris Reiter, “Smart Car Sputters in U.S. as Daimler Hunts for Partner,” Toronto Sun, January 12, 2010, p.
B6; Bernard Simon, “Daimler Discounts Smart in US,” Financial Times, November 13, 2009, p. 21; Steve Miller,
“Vroom for Two,” Brandweek, June 2, 2008, pp. 20+; Bill Marsh, “Welcome, Little Smart Car, to the Big American
Road,” The New York Times, January 6, 2008, sec. 4, p. 3; Chris Woodyard, “America Crazy about Breadbox on
Wheels Called Smart Car,” USA Today, November 11, 2007, www.usatoday.com; Royal Ford, “Smallest Car,
Biggest Market,” Boston Globe, December 6, 2007, p. E1.
From PRIDE/FERRELL. Marketing 2012, 16E. © 2012 South-Western, a part of Cengage Learning, Inc.
Reproduced by permission. www.cengage.com/permissions
Concepts Illustrated:
• Test marketing
• Forecasting
• Product life cycle
• Demographic trends
• Lifestyle trends
• Buzz marketing
14

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MM 3rd Edition Dawn Iacobucci

CHAPTER 8 – NEW PRODUCTS

1. Understand the importance of new products.

▪ Why are New Products Important?

1. Why are New Products Important?

This section relates to knowledge objective #1

2. How Does Marketing Develop New Products For Their Customers?

This section relates to knowledge objective #2

Marketing: In marketing-oriented companies, customer feedback is sought at most phases of the

Figure 8.1 New Product Development Process

Idea Creation and Market Potential

Figure 8.2 Where Do New Ideas Come From?

This figure lists out some of the sources of new ideas.

Concept Testing and Design & Development

TEACHING NOTE: Cadillac Cimarron, Apple’s Newton, Burger King’s veal

3. What Is The Product Life Cycle?

This section relates to knowledge objective #3

Figure 8.3 The Product Life Cycle (PLC)

This section relates to knowledge objective #4

Figure 8.4 Diffusion of Innovation

Figure 8.5 Cumulative Diffusion

Figure 8.6 Model of Diffusion

4. How Do New Products and Brand Extensions Fit in Marketing Strategy?

This section relates to knowledge objective #5

Figure 8.7 Growth Strategies

This figure shows the matrix of growth opportunities.

5. What Trends Should I Watch?

This section relates to knowledge objective #6

SUGGESTED ANSWERS TO MARKETING PLAN QUESTIONS

Product: fill in descriptions here:

Use conjoint on target segments to determine primary attributes/features: Product2

Where are we in the product life cycle; is it time to jumpstart: Product4

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

SUGGESTED ANSWERS TO MINI-CASE QUESTIONS: WILD FOODS

Tier II: DISC: Customer

SUGGESTED ANSWER TO ONLINE MINI-CASE QUESTIONS: NEW PPRODUCTS:

VIDEO CASE & DISCUSSION QUESTIONS

3. How does Smart USA utilize buzz marketing?

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