New-Product Options

There are a variety of types of new products and ways to create them.2

1. MAKE OR BUY

A company can add new products through acquisition or development. When acquiring, the company can buy other companies, buy patents from other companies, or buy a license or franchise from another company. Swiss food giant Nestle has increased its presence in North America by acquiring a variety of different brands such as Carnation, Stouffer’s, Ralston Purina, Dreyer’s Ice Cream, Jenny Craig, Gerber, Poland Springs, and PowerBar.3

But firms can successfully make only so many acquisitions. At some point, they need organic growth—the development of new products from within. Praxair, worldwide provider of industrial gases, achieved an ambi­tious goal of $200 million per year of double-digit new annual sales growth only through a healthy dose of organic growth and a large number of smaller but significant $5 million projects.4

For product development, the company can create new products in its own laboratories, or it can contract with independent researchers or new-product development firms to develop specific new products or new tech­nology.5 Firms such as Samsung, GE, Diageo, Hershey, and USB have engaged new-product consulting boutiques to provide fresh insights and points of view.

2. TYPES OF NEW PRODUCTS

New products range from new-to-the-world items that create an entirely new market to minor improvements or revisions of existing products. Most new-product activity is devoted to improving existing products. Some recent product launches in the supermarket were brand extensions, such as Tide To Go Stain Eraser, Gillette Fusion ProGlide Styler, Dawn Power Clean, Crest 3D White Glamorous White Toothpaste, and Coconut Delight Oreo Fudge Cremes.6 At Sony, modifications of established products accounted for more than 80 percent of new- product activity.

It is increasingly difficult to identify blockbuster products that will transform a market, but continuous innovation can broaden the brand meaning and also force competitors to play catch-up.7 Armstrong World Industries moved from selling floor coverings to selling ceilings to decorating all interior surfaces. Once a running-shoe manufacturer, Nike now competes with makers of all types of athletic shoes, clothing, and equip­ment. Its innovative FuelBand measures a person’s energy output during the day and allows it to be shared with others online; its sock-like Flyknit Racer shoes are environmentally friendly and create a wholly different running experience.8

Fewer than 10 percent of all new products are truly innovative and new to the world.9 These products incur the greatest cost and risk. And while radical innovations can hurt the company’s bottom line in the short run, if they succeed they can improve the corporate image, create a greater sustainable competitive advantage than ordinary products, and produce significant financial rewards.10

Keurig pioneered the one-cup-at-a-time pod-style brewing system that has swept homes and offices alike. For the speed, convenience, and variety offered, users are willing to pay 10 times the cost of a traditionally brewed cup of coffee, helping Keurig sales approach $4 billion and its sales based revenue market share exceed 40 percent.11 Another innovative new product that commands a premium is Beats by Dr. Dre headphones.12

BEATS BY DRE Born Andrew Young and a founding member of N.W.A and famed rap producer, Dr. Dre had made an indel­ible mark on the music scene before becoming an entrepreneur. His Beats by Dre headphones, launched in 2006 with music mogul Jimmy Iovine, have become a must for many music lovers despite costing $300, nearly 10 times what ordinary ear buds sell for. Their appeal is in the thumping bass-heavy sound and sleek look, even if the reviews among audiophiles are somewhat mixed. With strong adoption among celebrity musicians and athletes—the headphones were seen every­where at the 2012 Summer Olympic Games in London—Beats became as fashionable as they were practical and an essential modern lifestyle item. Beats by Dre has partnered with firms like Chrysler, HP, and HTC to build its sound technology in their cars, computers, and smart phones and has also introduced its own version of ear buds and other products. The company was acquired by Apple for $3 billion in August 2014.

Companies typically must create a strong R&D and marketing partnership to pull off a radical innovation.13 The right corporate culture is another crucial determinant; the firm must prepare to cannibalize existing products, tolerate risk, and maintain a future market orientation.14 A keen understanding of customers is also paramount.15

Few reliable techniques exist for estimating demand for radi­cal innovations.16 Focus groups can provide perspective on customer interest and need, but marketers may need a probe-and-learn approach based on observation and feedback of early users’ experiences and other means such as online chats or product-focused blogs.

High-tech firms in telecommunications, computers, consumer elec- tronics, biotech, and software in particular seek radical innovation. They face a number of product-launch challenges: high technological uncertainty, high market uncertainty, fierce competition, high investment costs, short product life cycles, and scarce funding sources for risky projects.18 Successes abound, however. Goggle has launched a number of path-breaking products and is looking for more.19

GOOGLE Since its beginnings as the quintessential search engine, Google has launched a wide variety of products that earned its reputation as one of the most innovative companies and amassed a market cap exceeding $300 billion. The company has introduced a series of related online products—notably gmail e-mail, Google+ social networking, and the Google Chrome enhanced browser. It has made a strong entry in the mobile market with its Andrioid operating sys­tem and its acquisition of Motorola Mobility for $12.5 billion. But not all new products are hits; some that seemed to miss their mark were Google Answers, Dodgeball, and Lively. Perhaps one of Google’s most ambitious new products is Google Glass, a computer worn like eyewear with an optical display that allows the user to answer calls, record video, and take photos with voice activation, connect to a smart phone, post to social media, and perform Google searches, among other things. The company has been beta-testing the product with thousands of Glass Explorers, who are paying $1,500 each for the opportunity to be an early adopter and pass along feedback. Google X, the internal group that developed Google Glass, is looking into other “out of this world” products, like self-driving cars and balloons that can transmit broadband Internet to remote regions from 12 miles in the air.

Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.

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