Chapter 9

Explain how companies find and develop new product ideas.

A firm can obtain new products in two ways: through acquisition or through new product development
efforts. In this chapter, we concentrate on new product development.

Definitions
Acquisition: Refers to the buying of a whole company, patent, or a license to produce someone else’s
product.

New product development: Refers to the original products, product improvements, product
modifications, and brand new developed from the Firms own research and development.

New Product Development Process

( Idea generation - Idea screening – concept development and testing – marketing strategy
development – business analysis – product development – test marketing – marketing )
The remaining steps reduce the number of ideas and develop only the best ones into
profitable products.
1- Idea generation
Idea generation: Is the systematic search for a new product idea.
Internal sources: Refers to the company’s own formal research and development, management, and
staff.

External sources: Refers to sources outside the company such as customers, competitors, distributers,
suppliers, and outside design firms.

Crowdsourcing: Involves inviting large communities of people, costumers’, employees, independent

scientists and researchers, and even the public at large to the new product innovation process.

2- Idea screening: Identify good ideas and drop poor ideas screening framework:
3- concept development and testing
- An attractive idea must then be developed into a product concept. It is important to recognize
between a product idea, a product concept, and a product image.
- Product idea: Is the idea for possible product that the company can see itself offering to the
market.
- Product concept: Is a detailed create of the idea in meaningful consumer terms.
- Product image: is the way a consumer perceives an actual or potential product.
- Concept testing refers to testing new product concepts with groups of target consumers.
4- Marketing strategy development is designing an initial marketing strategy for a new product
based on the product concept.
The marketing strategy statement consists of three parts.
• The first part describes the target market; the planned value proposition; and the sales, market-
share, and profit goals for the first few years.
• The second part of the marketing strategy statement outlines the product’s planned price,
distribution, and marketing budget for the first year.
• The third part of the marketing strategy statement describes the planned long-run sales, profit
goals, and marketing mix
5- Business analysis is a review of the sales, costs, and profit Expectations for a new product to
find out whether these factors satisfy the company’s objectives.
6- Product development: is developing the product concept into physical product to ensure that
the product idea can be turned into workable market offering.
7- Test marketing: Is the stage of new product development in which the product and its
proposed marketing program are tested in realistic market settings.

Testing concept: It is testing new products with people or a target group consumer.

Quality reference definition: Benchmarking is defined as the process of measuring the

products, services, process, and operations.
A Benchmark is an organization recognized for its perfect operational performance.

What is the purpose of benchmarking?

This purpose requires different level of involvement in the benchmarking activities.
The purposes of benchmarking range from basic learning to achieving world-class leadership.
The lifecycle of benchmarking purpose develop as the company becomes more mature with its
quality journey.

What are problems with benchmarking?

- There is a big difficulty of gaining cooperation from other firms in your own industry class.
- Your efforts will be wasted unless you fully understand your own processes before you
benchmark against someone else
- Benchmarking is time consuming and costly.

Why many products fail?

Because it can be very expensive and very risky. There are several reasons: overestimated
market size, poor product design, or incorrect positioning, timing, pricing, or advertising.
Chapter 10

What is price?
It is the amount of money charged for a product or service.

Explain pricing in a digital world?

 Get immediate seller price comparisons.
 Check the price at the point pf purchase.
 Set your prices and make them meet the customer expectations.
 Monitor customer behavior and provide offers.
 Give customer access to special prices.
 Negotiate prices online or even in person.

What are major pricing strategies?

Costumer value-based pricing
 Good value pricing: Is offering just the right combination of quality and good service at a fair
price.
 High-low pricing: Involves charging higher prices on an everyday basis but running frequent
promotions to lower prices temporarily on selected items.
 Everyday low pricing: Involves charging a continuing everyday low price with few or no
temporarily price discounts.
 Value added pricing: Attaches value added features or services to differentiate the companies
offers and thus their higher prices.

Cost based pricing

 Cost based pricing: Sets prices based on the cost of producing, distributing, and selling the
product plus a fair rate of return for effort and risk.
 Fixed cost: Are costs that do not vary with production or salles level like rent, interest, and
executive salaries.
 Variable cost: Are costs that vary directly with the level of production like raw materials and
packaging.
 Total cost: Are the total of fixed and variable costs for any given level of production.
 Competition based pricing
 Competition based pricing: Is setting prices based on Competitors strategies, costs, prices,
and market offerings.

What are the steps to estimate the value to the costumer?

 Identify the price of the competing product that the costumer views as the best substitute, this
is the reference value.
 Identify all the factors that differentiate your product from the competing product, these are the
differentiating factors.

Target costing: Starts with a perfect selling price based on consumer value considerations and then
targets cost that will ensure that the price is met.

What are the factors that reduce price sensitivity?

 The product is more special.
 Byers are less aware of substitutes.
 Byers cannot easily compare the quality of substitutes.
 The expenses are a little part of the byer’s total income.
 the expenses are small compared to the total cost of the end product.
 Part of the cost is hold out by another party.
 The product is assumed to be more quality, prestige, or exclusiveness.

1. Discount: A price reduction to buyer’s who pay the bills immediately.

2. Quantity discount: A price reduction to those who buy large volumes.
3. Seasonal discount: A price reduction to those who buy goods or services out of season.

Chapter 11
What is market penetration pricing?
 Setting low price of a new product in order to attract large number of people and large
market share.
1. The market must be high price sensitive.
2. Production and distribution costs must decrease as salles volume increases.
3. Protection against competitive price matching.
Price adjustment strategy:
- Discount and allowance pricing Reducing prices to reward customer responses such as volume
purchases, paying early, or promoting the product
- Segment pricing Adjusting prices to allow for differences in customers, products, or locations
- Psychological pricing Adjusting prices for psychological effect
- promotional pricing Temporarily reducing prices to spur short-run sales
- Geographical pricing Adjusting prices to account for the geographic location of customers
- Dynamic pricing Adjusting prices continually to meet the characteristics and needs of individual
customers and situations
- International pricing Adjusting prices for international markets

Planning Pricing Changes

• Price cuts happen due to:

• Surplus capacity
• Increased market share
• Price increases happen due to:

• Cost inflation
• Increased demand

Buyer Reactions to Pricing Changes

• Price increases

• Product is “hot”
• Company greedy
• Price cuts

• New models will be available

• Models are not selling well
  Competitors are most likely to react when the number of firms is small, when the product is
regular, and when the byers are well informed about products and prices.

Chapter 12

What is Upstream and Downstream partners?

 Upstream partners are firms that supply raw materials, components, parts, information,
finance, and expertise needed to create a new product or service.
 Downstream partners include market channels or distribution channels that look toward the
customer, including retailers and wholesalers.

What are marketing channels?

 Sets of linked organizations participating in the process of making the product or service
available for use or consumption.

What is multichannel marketing and value delivery network?

 Multichannel marketing is using two or more market channels to reach costumer segments in
one market area.
 Value delivery network is the firm’s suppliers, distributers, and finally the costumers who
partner with each other to improve the performance of the total system.
 Supply chain “make and sell” view includes the firm’s raw materials, productive inputs, and
factory capacity
 Demand chain “sense and respond” view suggests that planning starts with the needs of the
target customer, and the firm responds to these needs by organizing a chain of resources and
activities with the goal of creating customer value

Intermediates: Offers producers greater efficiency in making goods available to target markets,
through their contacts, experience, specialization, and scale of operations.

How channel members add value?

 Intermediates transform the variety of products into variety wanted by consumers.
 Channel members add value by bridging the major place, time and filling the gabs that separate
the goods or services from those who would use them.
What are channel functions and flows? *
 Gather information about potential and current costumers, competitors, and other forces of
marketing environment.
 Negotiate and reach arrangements on price and other terms.
 Place order with manufacturers.
 Assume risk connected with carrying out market channels.
 Provide for sequent storage and movement of physical products.
 Provide for byers payment of their bills through banks and other financial institutes.
 Managing actual transform of organization from one organization or person to another.

How Channel Members Add Value?

Information. Gathering and distributing information about consumers, producers, and other actors and
forces in the marketing environment needed for planning and aiding exchange.

• Promotion. Developing and spreading persuasive communications about an offer.

• Contact. Finding and engaging customers and prospective buyers.

• Matching. Shaping offers to meet the buyer’s needs, including activities such as manufacturing,
grading, assembling, and packaging.

• Negotiation. Reaching an agreement on price and other terms so that ownership or possession can be
transferred.

• Physical distribution. Transporting and storing goods.

• Financing. Acquiring and using funds to cover the costs of the channel work.

• Risk taking. Assuming the risks of carrying out the channel work.

• Channel levels

– Zero-level channel (direct)

– One/two/three-level channels (intermediaries)

 Consumers may choose the channels they prefer based on price, product assortment, and
convenience as well as their own shopping goals (economic, social, or experiential). Channel
segmentation exists, and marketers must be aware that different consumers have different
needs during the purchase process.

Channels produce five service outputs:

 1. Desired lot size—The number of units the channel permits a typical customer to purchase on
one occasion.

2. Waiting and delivery time—The average time customers wait for receipt of goods. Customers
increasingly prefer faster delivery channels.

3. Spatial convenience—The degree to which the marketing channel makes it easy for customers
to purchase the product.

4. Product variety—The assortment provided by the marketing channel. Normally, customers

prefer a greater assortment because more choices increase the chance of finding what they
need, though too many choices can sometimes create a negative effect.

5. Service backup—Add-on services (credit, delivery, installation, repairs) provided by the channel.
The more service backup, the greater the benefit provided by the channel.

Marketing channel design calls for

analyzing consumer needs,

setting channel objectives,

1. Targeted levels of customer service

2. What segments to serve

3. Best channels to use

4. Minimizing the cost of meeting customer service requirements

identifying major channel alternatives,

 Types of intermediates
 Number of intermediates
 Responsibilities of each channel member

and evaluating the alternatives.

Public policy and distribution decisions

• Exclusive distribution is when the seller allows only certain outlets to carry its products

• Exclusive dealing is when the seller requires that the all sellers not handle competitor’s
products

• Exclusive regional agreements is when producer or seller limit region

• Channel Behavior

Channel conflict refers to disagreement among channel members over goals, roles, and rewards.
 • Horizontal conflict

• Vertical conflict

Horizontal channel conflict: Refers to a disagreement between two or more channel members on the
same level.

Vertical channel conflict: Involves a disagreement between two channel members or sequential level.
Channel conflict: Is generated when one channel member actions prevent another channel member
from achieving its goals.

Channel coordination: Occurs when all channel members are brought together to advance the goals
of the channel instead of their own potentially conflicting goals.

Marketing logistics: Involves planning, implementing, and control the physical flow of goods, services,
and related information from points of origin to points of consumption.

After a company has chosen a channel system, it must select, train, motivate, and evaluate
intermediaries for each channel. It must also modify channel design and arrangements over
time, including the possibility of expansion into international markets.

What are causes of channel conflict?

 Goal incompatibility.
 Unclear roles and rights.
 Differences on perception.
 Intermediaries dependence on manufacturers.

• E-commerce

– Uses a Web site to transact or facilitate the sale of products and services online

Chapter 14
What is the promotion mix?
 It is the specific combine of promotions that the company uses to convincingly communicate
customer value and build customer relationships.

What is marketing communication?

 Means by which firms attempt to inform, convince, and remind consumers about their products
and brands they sell.

The promotional mix *

 Advertising: Is any paid non-personal presentations or promotions of ideas, goods, or service
by an identified sponsor
 Sales promotion: Is a short-term incentive to encourage the purchase or sales of a product or
service.
 Personal selling: Is the personal interaction by firm’s sales force for the purpose of engaging
costumer, making sales, and building costumer relationships.
 Public relations: Involves building good relations with the company’s various publics by
obtaining suitable publicity, building up a good corporate image, and handling off unfavorable
rumors, stories, and events, and looking for CSR.
 Events and experiences: Sponsored company activities and programs designed to create daily
or brand related interactions with consumers including sports, arts, and entertainment.
 Direct and digital marketing: Involves engaging with carefully targeted individual’s
consumers and costumer communities to both obtain immediate response and build lasting
costumer relationships.

Content marketing: Is creating, inspiring, and sharing brand messages and conversations with and
among consumers trough paid, owned, and shared channels.

Integrated marketing communications (IMC): Involves carefully integrating and coordinating the
company’s many communications channels to deliver a clear, suitable message about the organization
and its products.

What are the elements of advertisement of communication process?

  Sender: Is the person who intends to convey the message with the intention of passing the
information and idea to others.
 Idea: It is the subject matter of communicating, this may be an opinion, attitude, feelings, views,
orders, or suggestions.
 Communication channels: The person who is interested of communicating has to choose a
channel for sending the required information or idea.
 Receiver: The person who receives the message or for whom the message is meant for.
 Feedback: Is ensuring that the receiver has received the message and understood in the same
sense as the sender.

What are the steps in developing effective marketing communication?

 Identify the target audience.
 Determine the communication objectives.
 Design the message.
 Chose the media to send the message.
 Send message source and collect feedback.

Explain the methods for setting the promotion budget?

 The reasonable method: Sets the promotional budget at a level management thinks the
company can afford.
 The percentage of sales method: Sets the promotional budget at a certain percentage of
current or forecasted sales or as percentage of the unit sales price.