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Chapter 09 The Product Experience: New-Product Development and Service True/False Questions 1. Cost reduction is a method for introducing lower-cost products that frequently focus on value-oriented product price points in the product mix. Answer: True Rationale: Cost reduction involves eliminating or reducing features, using less-expensive materials, or altering the service or warranty to offer the product at a lower price point to the market. 2. Success or failure of a new product is determined primarily by the actions of the company. Making bad decisions by not identifying the value proposition, designing and building a product that fails to meet customer expectations, and incorrectly pricing the product are all factors that increase the likelihood of new product failures. Answer: True Rationale: Variables such as the design of the product, its price, and so on are all things decided by the company introducing a new product. Hence, the success or failure of a new product is determined primarily by the actions of the company. 3. Large and small companies face the same issues when it comes to developing new products. Answer: False Rationale: Companies face different challenges depending on their size and stage of development. For example, large companies find it easier to access capital markets as compared to start-up organizations. 4. A service is first produced and then sold. Answer: False Rationale: A service is first sold and then it is produced and consumed at the same time. 5. Research suggests that consumers prefer environmentally sensitive products, but are unwilling to pay a significant price premium. Answer: True Rationale: Consumers like ecological products but are hesitant to pay a premium for them. 6. The new-product development process can be described in three steps: (1) identify product opportunities, (2) define the market place parameters for the possibility of government regulation, and (3) develop the product opportunity. Answer: False Rationale: The government has nothing to do with the new product development process. 7. A stop-to-market mistake happens when a company fails to stop a bad product idea from moving into product development. Answer: False Rationale: When a company fails to stop a bad product idea from moving into product development, it is known as a go-to-market mistake. 8. A go-to-market mistake is made when a company fails to stop a bad product idea from moving into product development. Answer: True Rationale: When a company fails to stop a bad product idea from moving into product development, the mistake is known as a go-to-market mistake. 9. A service can't be stored or saved up for future use. Answer: True Rationale: A service can't be stored or saved up for future use. This is known as the perishability of the service. 10. The first step in the new-product development process is to define the product opportunity. Answer: False Rationale: The first step in the new-product development process is to identify potential product opportunities. Defining the product opportunity is the second step. 11. The number of products purchased by the same customer is called repeat purchases. This can be important with things like stereos and cell phones which are considered convenience goods. Answer: False Rationale: Repeat purchases are important with frequently purchased products such as convenience goods that rely on frequent repeat purchases for success. Stereos and cell phones are not considered as convenience goods. 12. The challenge for the new product development team is to design and build a product the customer wants to buy while hitting the company's success metrics—sales price, revenue, profit margins, unit sales, and cost to build. Answer: True Rationale: It is always a challenge to create a product that the consumer loves and which also makes an acceptable amount of money for the company. 13. Alpha testing encourages customers to evaluate and provide feedback on the prototype. Answer: False Rationale: Beta (and not alpha) testing encourages customers to evaluate and provide feedback on the prototype. Alpha testing clarifies basic operationalization of the product such as the physical characteristics and features. 14. Products being developed in the new product development process are often given code names. During the test marketing process they still carry the code name until the product is ready to be fully commercialized. Answer: False Rationale: Once a product is brought to market the real name is used and tested just like the product. 15. If a product is not successful early in a new product launch, management is often unwilling to spend additional dollars as the product becomes more widely distributed. The end result is usually a downward spiral. Answer: True Rationale: Products seldom recover from a poor launch. Companies give their all to a new product and if it is not successful, they typically will not fund it. 16. According to the consumer product adoption process, the early majority refers to a group of people who are the prime candidates for beta testing. Answer: False Rationale: According to the consumer product adoption process, innovators (and not the early majority) are the prime candidates for beta testing. 17. According to the consumer product adoption process, laggards refers to a group of people who are product avoiders and who want to evade adoption as long as possible. Answer: True Rationale: Laggards are resistant to change. They will put off the purchase until there is no other option. 18. In the product adoption process, consumers move through five stages that can be described as awareness, interest, desire, trial, and rejection. Answer: False Rationale: The five stages in the product adoption process are: awareness, interest, desire, trial, and adoption. The process should end with adoption and not rejection. 19. When consumers purchase a product for the purpose of making a value decision in the product adoption process, it is called the trial stage. Answer: True Rationale: According to the product adoption process, in the trial stage, consumers purchase the product for the purpose of making a value decision. 20. Early adopters are opinion leaders who seek out new products but are price sensitive. Answer: False Rationale: Early adopters are not price-sensitive and are willing to pay the price premium for a product. 21. We operate in an economy that is increasingly focused on intangible offerings-services, instead of just physical goods. Answer: True Rationale: The economy is service focused. 22. In today's workplace everyone is involved in service in some way; everyone has customers either outside or inside the firm, or both. Answer: True Rationale: Nearly everyone in a firm has something to do with service delivery whether it is internal or to customers. 23. When one considers the product and where its value comes from, it has become obvious over time that value comes from the tangible product and its features and the services which surround it are not an important part of the overall product experience. Answer: False Rationale: A product cannot be separated from the services that surround it. The services which surround the tangible product are an important part of the overall product experience. 24. Most airlines will not let a customer change a super-low-fare ticket because once the plane backs away from the gate, the value of the empty seat is zero. Answer: True Rationale: One of the unique things about services is that it cannot be stored or saved up for future use or sale. 25. The service-profit chain identifies that increases in service through the cultivation of employees leads to higher customer costs and the potential erosion of profits. Answer: False Rationale: The service-profit chain identifies that increases in service through the cultivation of employees leads to lower customer costs and higher potential profits. 26. A fundamental rule in marketing is to not set customer expectations so high that they cannot be effectively met on a consistent basis. Answer: True Rationale: It is one of the challenges of service marketing to not set the expectations so high that they cannot be met. 27. Almost all people switch from one service provider to another on account of high prices. Answer: False Rationale: Price is not the main reason why people leave a service provider. Reasons run the gamut from low utility to various forms of service failure to concerns about a firm's practices. Multiple Choice Questions 28. The _______________ approach is a method for introducing lower cost products by eliminating or reducing features, using less-expensive materials, or altering the service or warranty to offer the product at a lower price point to the market. A. Innovation diffusion B. Profitability analysis C. ROI D. Time to market E. Cost reduction Answer: E. Cost reduction Rationale: Cost reduction, as the name implies, is a specific method for introducing lower-cost products that frequently focus on value-oriented product price points in the product mix. Generally this approach involves eliminating or reducing features, using less-expensive materials, or altering the service or warranty to offer the product at a lower price point to the market. 29. When talking about new products, what does new mean? A. New-to-the-world B. Modification to existing products C. Additions to product lines D. Repositioning existing products E. All of the above Answer: E. All of the above Rationale: Modification to existing products, additions to product lines, repositioning existing products, and new-to-the-world products would be considered as new products. 30. Products that are new-to-the-world create a product situation which can be described as _______________. A. Supply chain shifting B. Innovation by intimidation C. Diluted innovation D. Disruptive innovation E. Destructive innovation Answer: D. Disruptive innovation Rationale: New-to-the-world products, if successful, will create basic changes in the way the world views the product category and thus are disruptive. 31. No matter how good a company's current products are, long term growth depends on _______________. A. Recycled products B. Product deletions C. Product enhancements D. New products E. All of the above Answer: D. New products Rationale: A company has to bring new things to the market in order achieve growth in the long term. 32. New-to-the-world products are products that _______________. A. Have been available before but are recycled B. Are repositioned C. Have not been available before their introduction to the market D. Are not disruptive to the market place E. None of the above Answer: C. Have not been available before their introduction to the market Rationale: The very definition of new-to-the-world means that the product has not been available in the market before. 33. Desktop computers, cell phones, and PDAs are examples of new-to-the-world products considered _______________. A. Disruptive innovations B. Continuous innovations C. Sustaining innovations D. Modifications to existing products E. Faster versions of existing products Answer: A. Disruptive innovations Rationale: Disruptive innovations shift people's perspective and frequently alter their behavior by offering dramatically simpler, more convenient, and usually less-expensive products than those that currently exist. Desktop computers, cell phones, and PDAs are all examples of new-to-the-world products considered disruptive. 34. When new-to-the-world products are better, faster versions of existing products that target, for the most part, existing customers it is said that these products are _______________. A. Neo innovations B. Subtle innovations C. Left handed innovations D. Sustaining innovations E. Disruptive innovations Answer: D. Sustaining innovations Rationale: Sustaining innovations are newer, better, faster versions of existing products that target, for the most part, existing customers. 35. One way to extend the product is by _______________. A. Creating additions to existing product lines B. Creating new names for the same product C. Repositioning the product D. Introducing the product to a new market E. Encouraging repeat purchase Answer: A. Creating additions to existing product lines Rationale: A company can extend a product by creating additions to an existing product line. An example of this is Coke with Coke Zero. 36. Products that create a fundamental change in the marketplace are known as _______________. A. Recycled products B. Product modifications C. Incremental enhancements D. New-to-the-world products E. Repositioned products Answer: D. New-to-the-world products Rationale: New-to-the-world products are innovative and they create a fundamental change in the marketplace. 37. Customers view new products much differently than companies. Customers only care if the product is _______________. A. New to their retail store B. New to them C. Offered through a new outlet D. Offered on-line E. None of the above Answer: B. New to them Rationale: While the company follows a specific strategy in creating a new product, the customer is unaware and, in reality, often does not really care about how the product arrived in the marketplace. The customer's perspective is much more narrow and self-directed. The customer is most interested in an answer to the fundamental question—is this product new to me? 38. New product development is a critical success factor for most organizations. The percent of new products that fail worldwide is _______________. A. 20 to 30 percent B. 30 to 50 percent C. 50 to 70 percent D. 70 to 80 percent E. 10 to 20 percent Answer: D. 70 to 80 percent Rationale: 70 to 80 percent of all new products worldwide fail. 39. Success or failure of a new product is determined by the actions of the company. The factor or factors that increase the likelihood of failure can be described as _______________. A. Poor marketing communications B. Failure to meet customer expectations C. Incorrect pricing D. Failure to identify the value proposition E. All of the above Answer: E. All of the above Rationale: Poor marketing communications, failure to meet customer expectations, incorrect pricing, and failure to identify the value proposition can lead to product failure. 40. For start-up companies, the main reason for failure of new products is _______________. A. Lack of technology B. Lack of capital C. Lack of innovative ideas D. Lack of access to distribution markets E. Competitive pressure Answer: B. Lack of capital Rationale: Lack of capital is a persistent problem for start up companies. 41. The new product development process is a difficult one. The time it takes to develop a new product is _______________. A. Increasing B. Same as it has always been C. Decreasing D. Indefinite due to the nature of financial markets E. None of the above Answer: C. Decreasing Rationale: The market is constantly putting pressure on the new product development cycle to make it shorter in terms of time. 42. Companies are creating _______________ that address the demands of smaller groups. A. More specialized products B. More generic products C. More engineered products D. More customized bargain goods E. More low cost goods Answer: A. More specialized products Rationale: One way companies manage specific customer needs is by creating specialized products that address the demands of smaller groups. 43. If new-product development does not follow a timeline _______________. A. Development costs will, most likely, exceed established budgets B. The quality of the product will be substandard C. Marketers will have more time to test market the product D. The product can be further refined E. More consumer interest can be generated Answer: A. Development costs will, most likely, exceed established budgets Rationale: If new-product development does not follow a timeline, development costs will, all too frequently, exceed established budgets. Inadequate resource allocation forces companies to slow the development, redirect resources for one project to another, or even eliminate projects before product development has been completed. 44. CAFE standards are _______________. A. Standards for restaurants B. Standards for coffee growers C. Standards for automakers D. Standards for cafeterias E. Standards for emission control Answer: C. Standards for automakers Rationale: CAFE stands for corporate average fuel economy. Thus, it is the standard the government uses in the auto industry. 45. With services, continual investment in training, retraining, and good management of people are required if _______________ is to be consistently low. A. Perishability B. Intangibility C. Inseparability D. Variability E. Scalability Answer: D. Variability Rationale: Variability of a service means that because it can't be separated from the provider, a service's quality can only be as good as that of the provider him-/herself. So in order to reduce variability, continual investment in training, retraining, and good management of people is required. 46. One challenge facing companies is to generate new ideas for products. A good source for new-product ideas comes from _______________. A. R&D B. Marketing C. Manufacturing D. Internal Employees E. All of the above Answer: E. All of the above Rationale: R&D, marketing, manufacturing, and internal employees are considered as good sources for new product ideas. 47. _______________ are the single best source for new product ideas. A. Consultants B. Market surveys C. Outside laboratories D. Search engines E. Internal sources Answer: E. Internal sources Rationale: Internal sources such as key employees from R&D, marketing, and manufacturing know both the capabilities of the company and the needs of the market. Hence, they are considered the single best source for new product ideas. 48. Many times customers provide ideas to salespeople, customer service representatives, and other direct customer contact people in the firm. These types of people who work with customers are generally good at generating ideas that are _______________. A. Game changing products B. Innovative leaps in design C. Incremental changes to existing products D. Challenging for R&D due to their aggressive nature E. Related to repositioning of existing products Answer: C. Incremental changes to existing products Rationale: People who work directly with customers can identify new-product ideas. Often these ideas are incremental changes to existing products that solve a particular problem. 49. A willingness and ability on the part of a customer to participate in communicating the brand message to others within his or her sphere of influence is known as _______________. A. Customer loyalty B. Consumer promotion C. Customer advocacy D. Customer branding E. Consumer allegiance Answer: C. Customer advocacy Rationale: Customer advocacy refers to a willingness and ability on the part of a customer to participate in communicating the brand message to others within his or her sphere of influence. 50. MySpace.com was a start up by two entrepreneurs who just wanted a place to hang out. It grew to 117 million uses and was purchased by News Corp. This is an example of _______________. A. Larger companies not being able to create disruptive innovations on their own B. Smaller companies being the hot beds for debt-based incubation C. Predatory pricing by technology companies D. Companies growing through acquisition of smaller companies with innovative new products E. All of the above Answer: D. Companies growing through acquisition of smaller companies with innovative new products Rationale: In some industries, such as Internet applications, innovation often occurs at small companies that big companies then buy in order to grow. 51. Customers are sometimes excellent sources of new product ideas. They typically are not good at coming up with _______________. A. Money making ideas B. New-to-the-world ideas C. Ideas that make sense D. Brand saving ideas E. None of the above Answer: B. New-to-the-world ideas Rationale: It is hard for consumers to vision things that are out of their everyday experience and thus they are not good at new-to-the-world ideas. 52. Many organizations are too small to have a national sales force to help discover new-product ideas. For such companies _______________ are a good source for new-product ideas particularly when they are the primary link between the customer and the company. A. Distributors B. Parts manufacturers C. Logistics companies D. Market research firms E. Consumer forums Answer: A. Distributors Rationale: Distributors have good knowledge of the market as they often are a link between the company and the customer. 53. A low propensity to consider switching to other service providers is indicative of _______________. A. Poor customer service B. Customer dissatisfaction C. Low customer loyalty D. High customer retention E. Customer turnover Answer: D. High customer retention Rationale: Customer loyalty sparks high customer retention, that is, a low propensity to consider switching to other providers. 54. Firms must _______________ all new-product ideas from the list of ideas that are generated by the idea generation stage. A. Rank on the basis of cost B. Screen and evaluate as quickly as possible C. Develop a business plan for D. Develop a scale model for E. All of the above Answer: B. Screen and evaluate as quickly as possible Rationale: New-product development is expensive and resources are scarce, so ideas are evaluated early to assess their viability. 55. Product testing done internally by engineers, product specialists, and other employees is called as _______________ testing. A. Reliability B. Alpha C. Beta D. Variability E. Gamma Answer: B. Alpha Rationale: As the product's characteristics are being finalized, most of the testing is done internally by engineers, product specialists, and other employees. This type of testing, called alpha testing, helps clarify the basic operationalization of the product such as the physical characteristics and features. 56. A go-to-market mistake is made when a company _______________. A. Buys an outside product to mix with its current other products B. Fails to stop a bad product idea from moving forward into product development C. Fails to stop advertising when it is clear that the product is not going to make it D. Fails to order enough of a new product to supply its customers E. Prematurely eliminates a good idea during the screening process Answer: B. Fails to stop a bad product idea from moving forward into product development Rationale: A go-to-market mistake is made when a company fails to stop a bad product idea from moving into product development. Product development is very expensive and it is a great mistake to let bad product ideas progress beyond the screening stage. 57. A stop-to-market mistake happens when _______________. A. A bad idea is allowed to make it to market B. The screening committee decides to market a product that has a fatal flaw C. A good idea is pushed forward without knowing the ROI of its execution D. A good idea is prematurely eliminated during the screening process E. A company introduces a new product without sufficient advertising Answer: D. A good idea is prematurely eliminated during the screening process Rationale: When a good idea is prematurely eliminated during the screening process it is called a stop-to-market mistake. 58. Time to market is a term that indicates _______________. A. The best time to market a new product B. The duration for which a company has been in a particular market segment C. How long it will take to develop and get a product to market D. How long it will take to get a product through the introductory stage to the growth stage E. How long it will take to get a product from the awareness to adoption stage Answer: C. How long it will take to develop and get a product to market Rationale: How long it takes to get the product to market is referred to as time-to-market. 59. An analysis of a new product idea during the screening stage often includes an internal assessment by _______________. A. Finance, marketing, R&D, manufacturing, and logistics B. The ethics committee for new products C. The product line coordinator for the area the new product is going to be located D. The new product development coach hired to coach the process for getting the new product to market E. All of the above Answer: A. Finance, marketing, R&D, manufacturing, and logistics Rationale: These groups-finance, marketing, R&D manufacturing and logistics-are all required in a new product evaluation process. 60. The third stage of the new-product development cycle is _______________. A. Identify product opportunity B. Develop the product opportunity C. Define the product opportunity D. Define the value proposition for the new product E. Define the target market for the new product Answer: B. Develop the product opportunity Rationale: The new-product development process consists of three main stages - (1) identify product opportunities, (2) define the product opportunity, and (3) develop the product opportunity. 61. Companies often have to delineate a product's characteristics, which refers to _______________. A. How the product looks B. How the product feels C. The physical elements of the product D. The features of the product E. All of the above Answer: E. All of the above Rationale: Delineating a product's characteristics means defining its look, feel, physical elements, and features. 62. Generation Millennium Computer Co. is trying to test a new product concept. It would be normal for the company to _______________. A. Ask consumers if they would buy this product and ask how much are they willing to pay B. Ask consumers if they would like any changes in the new product design C. Ask consumers if they perceive the product to be different from other products on the market D. All of the above E. None of the above Answer: D. All of the above Rationale: Target customers are useful in defining the product concept. Companies use the information gathered from the customers to refine and develop the product as per customer requirements. 63. _______________ involves treating employees as customers and developing systems and benefits that satisfy their needs. A. Service inseparability B. Internal marketing C. Internal service value D. Customer advocacy E. Service branding Answer: B. Internal marketing Rationale: Internal marketing, that is, treating employees as customers and developing systems and benefits that satisfy their needs, is an essential element of internal service quality. 64. After a new product is designed in the product development cycle it leads to a distinct set of physical characteristics and a detailed feature mix. At this point, the company would _______________. A. Develop a working prototype that is exactly as the new product will appear to the market B. Develop a marketing strategy that is detailed but tentative C. Set up infrastructure for the production of the new product D. Identify sources of finance for the new product E. Evaluate ethical aspects of the product Answer: B. Develop a marketing strategy that is detailed but tentative Rationale: Once the distinct set of physical characteristics and the detailed feature mix for the product is known, the product becomes better defined. At this stage, marketing specialists develop a tentative, but detailed, marketing strategy. 65. Firms practicing internal service quality are _______________, that is, they place the customer at the center of everything that takes place both inside and outside the firm. A. Operations focused B. Market oriented C. Customer-centric D. Concerned with the product experience E. Internally focused Answer: C. Customer-centric Rationale: Firms practicing internal service quality are customer-centric — they place the customer at the center of everything that takes place both inside and outside the firm. Firms that are customer-centric exhibit a high degree of customer orientation. 66. Before a company develops a full prototype of a new product, it often _______________. A. Creates simulations of the product so consumers can virtually feel like they have experienced the product B. Creates packages and labels for the product C. Creates advertisements that show the use of the product by the intended product users D. Creates jingles that will be used to introduce the new prototype to the market E. All of the above Answer: A. Creates simulations of the product so consumers can virtually feel like they have experienced the product Rationale: Simulation is one of the ways to allow consumers to experience a product without actually producing it. 67. The business case analysis stage is important because _______________. A. It is an overall evaluation of a product and usually assesses the product's probability of success B. It represents another low cost analysis prior to developing a prototype product C. The firm has already decided to take this product to the market and this must confirm this action D. A, B and C E. It predicts the future trends in the industry Answer: A. It is an overall evaluation of a product and usually assesses the product's probability of success Rationale: The business case analysis evaluates the product and usually assesses the product's probability of success. In new-product development, the business case focuses on two key issues. First, the total demand for the product over a specified period of time, usually five years, is determined. Second, a cash flow statement is developed that specifies cash flow, profitability, and investment requirements. 68. _______________ are often considered a more realistic picture of product growth. A. New purchases B. Revenues C. Unit sales D. Repeat purchases E. Replacement purchases Answer: C. Unit sales Rationale: Currency fluctuations can lead to wide variations in revenue, and price increases can also dramatically affect total revenue. So unit sales are often considered a more realistic picture of product growth. 69. New purchases of new products are called _______________. A. Original purchases B. Subliminal purchases C. Purchase novelties D. Trial purchases E. Replacement purchases Answer: D. Trial purchases Rationale: Purchases of new products for the first time are called trial purchases. 70. Total demand is a function of three separate situations, which can be described as _______________. A. New, ideal, and impulse purchases B. New, repeat, and replacement purchases C. New, repeat and impulse purchases D. New, impulse and replacement purchases E. New, convenient, and impulse purchases Answer: B. New, repeat, and replacement purchases Rationale: The combination of new, repeat and replacement purchases represent the total demand for the new product. 71. It is typical to develop a _______________ in the new product development cycle during the business case analysis stage. A. Projection of total demand for the product over a specified period of time, usually five years B. One year profit and loss statement due to the unknowns of the long term C. Budget for the new product introduction for the first 6 months D. Business description of the market as it looks 20 years from now E. Cash flow projection for the entire product life cycle Answer: A. Projection of total demand for the product over a specified period of time, usually five years Rationale: In new-product development, the business case determines the total demand for the product over a specified period of time, usually five years, and it also develops a cash flow statement. 72. The new product development process changed in the 1990's due to _______________. A. Increase in failure rates of new products B. Decrease in the number of new ideas coming to market C. Development of web-based design and research D. Increase in the cost of taking products to market combined with high failure rates E. Decrease in the cost of taking products to market Answer: D. Increase in the cost of taking products to market combined with high failure rates Rationale: The change in the 1990's to the new product development cycle was due to the increasing cost of bringing new products to market combined with high failure rates. 73. One method of developing a new product is to develop a model which incorporates more planning and follows a sequential timeline with key process metrics being met at each stage before moving on through the process. In this model, the product that results is _______________. A. A rough model that can be changed easily B. A model that is considered close to the final product that will be rolled out to customers C. A model that is put together in a form that can be decomposed into parts and altered to create new forms D. A model that is inferior to the final product to test the worst case scenario of market introduction E. None of the above Answer: B. A model that is considered close to the final product that will be rolled out to customers Rationale: One method of developing a new product is to develop a model that is as close to the final model as possible and then to use the metrics to be sure that it is meeting its goals all along the way. 74. The business case analysis is an overall evaluation of a product and usually assesses _______________. A. The product's probability of success B. The product life cycle C. The future trends in the industry D. The demographics of the target market E. The psychographics of the target market Answer: A. The product's probability of success Rationale: The business case analysis is an overall evaluation of a product and usually assesses the product's probability of success. It determines the total demand for the product for a specified period (usually five years) and develops a cash flow statement. 75. Beta testing is designed to _______________. A. Encourage customers to evaluate and provide feedback on the prototype B. Let engineers inside the company test the product performance C. Allow product specialists and experts assess a product D. Identify sales prospects E. Determine the physical characteristics of the product Answer: A. Encourage customers to evaluate and provide feedback on the prototype Rationale: Beta testing implies putting the new product in the hands of consumers in order to get feedback. 76. Once a product is ready to be test marketed, _______________. A. It is marketed under a code name B. It is marketed with a brand identity and packaging that will be used when commercialized C. It is marketed under a fake name to hide its real market existence from competitors D. It is marketed with very different appeals than will be used in the commercialization phase to keep the benefits hidden from competition E. None of the above Answer: B. It is marketed with a brand identity and packaging that will be used when commercialized Rationale: It is usual to use the real name and branding identity when test marketing to make sure the whole of the product is tested for commercialization. 77. The greater the _______________, the more market testing a company will want to do before a full product launch. A. Profit motive of the company B. Risk of alienation of existing customers C. Risk of failure D. Cost of doing nothing E. Time required for manufacturing the product Answer: C. Risk of failure Rationale: The cost of launching a product failure is very high. Hence, the greater the risk of failure, the more market testing a company will do before a full product launch. 78. Market testing can take a long time, and this can result in _______________. A. Competitors being able to develop marketing strategies to counter a product launch B. The company losing the excitement of a new product C. Competitors being able to sabotage the firm's efforts D. On-line guerilla tactics by competitors that will disrupt the sales cycle of the product E. None of the above Answer: A. Competitors being able to develop marketing strategies to counter a product launch Rationale: One of the down sides to testing is the ability of competitors to prepare a counter attack against a new product launch. 79. For many consumer products, test markets run _______________. A. More than a year B. More than two years C. Less than two months D. Less than a year E. More than five years Answer: D. Less than a year Rationale: With many consumer products, purchase cycles are relatively short (days or weeks) so usually the tests markets run less than a year. 80. Market testing is designed to help the company _______________. A. Adjust its marketing plan before product launch B. Identify the counter strategies that the competitors will use C. Forecast the future economic trends D. Identify the ethical implications of the new product launch E. Forecast changes in consumer preferences Answer: A. Adjust its marketing plan before product launch Rationale: One of the objectives of market testing is to get feedback on the tactics that can be used to adjust the marketing plan before product launch. 81. In the B2B market, test marketing is _______________. A. Identical to the B2C market B. Smaller in scope and involves fewer individuals and companies C. Larger in scope and involves more individuals and companies D. Identical in scope to B2C market but is much more complex E. Very difficult and generally products are launched without test marketing Answer: B. Smaller in scope and involves fewer individuals and companies Rationale: In B2B test marketing, the tests are smaller in scope and involve fewer individuals and companies. 82. Products that start poorly in a product launch _______________. A. Seldom recover from the poor launch B. Recover readily through increased marketing effort C. Have a longer product life cycle D. Have a knack for being the market leader through slow but steady growth E. Have a shorter innovation diffusion process Answer: A. Seldom recover from the poor launch Rationale: The product launch is critical to the long-term success of the product as products seldom recover from a poor launch. 83. Many product launches are front loaded with communication dollars with the goal of _______________. A. Seeing if there is any interest in the product B. Evaluating the product excitement generated C. Creating sufficient product interest that will turn into repeat and replacement purchases later D. Studying the product life cycle to see what kind of curve is achievable in the short run so the longer run can be forecasted with some degree of certainty E. Identifying consumer tastes and preferences Answer: C. Creating sufficient product interest that will turn into repeat and replacement purchases later Rationale: Products seldom recover from poor launch. So the goal of spending heavily at the product launch is to create sufficient product interest that will turn into repeat and replacement purchases later. 84. Two-thirds of all adopters for a given product fall in the _______________. A. Early adopters B. Early and late majority C. Innovators D. Late majority E. Early majority Answer: B. Early and late majority Rationale: Two-thirds of all adopters for a given product fall in the early and late majority. 85. With respect to the product adoption process, marketers are interested in knowing _______________. A. The rate at which the product will be adopted as well as the timeline for adoption B. The rate at which sales will exceed costs C. The rate at which the late majority come into the market during growth D. The rate of the early majority acceptance of the product E. The duration required to reach breakeven Answer: A. The rate at which the product will be adopted as well as the timeline for adoption Rationale: The purpose of the product life cycle is to see the timeline for the rate of adoption by the market. 86. The rate at which new products become accepted is known as the _______________. A. Product variance process B. Product sensitivity process C. Product adoption process D. Product steering process E. None of the above Answer: C. Product adoption process Rationale: The product adoption process is designed to observe the rate at which a new product is accepted into the market. 87. As per the product adoption process, _______________ are prime candidates for beta testing. A. Early majority B. Innovators C. Late majority D. Early adopters E. Laggards Answer: B. Innovators Rationale: As per the product adoption process, innovators are prime candidates for beta testing. 88. The innovation diffusion process _______________. A. Is how long it takes a product to move from introduction to growth B. Is how long it takes to move from awareness to interest C. Is how long it takes to move from trial to adoption D. Is how long it takes a product to move from first purchase to last purchase E. Is how long it takes to move from interest to trial Answer: D. Is how long it takes a product to move from first purchase to last purchase Rationale: The innovation diffusion process is defined as a study of how long it takes to move from first to last purchase. 89. An individual moves through stages before adopting a product. The interest stage is characterized as _______________. A. The stage where customers find they have a passion for the product B. Having the most significance in the new product adoption process C. Where consumers seek out added information about a product for further evaluation D. The stage where customers feel, see, and touch the product E. The stage where the consumers come to know about the product Answer: C. Where consumers seek out added information about a product for further evaluation Rationale: In the interest stage potential buyers seek out information to help them evaluate the product for purchase. 90. The evaluation stage of the adoption process is where _______________. A. Consumers seek out information to further define the product B. Consumers are engaged in the consumption of the product C. Consumers are at the stage to determine if they want to become loyal to the product D. Consumers combine all information and evaluate the product prior to trial E. Consumers only know the product but have insufficient information about the product Answer: D. Consumers combine all information and evaluate the product prior to trial Rationale: In the evaluation stage potential buyers combine all information (word of mouth, reviews, advertising) and evaluate the product from many perspectives. 91. Marketers spend heavily in the product launch phase in order to move people through _______________. A. The trial phase and into the adoption phase to get loyalty as soon as possible B. Awareness, interest and evaluation getting them to try the product quickly C. The evaluation phase quickly in order for them to search out as much information as possible D. The adoption phase so they can be product advocates as early as possible E. None of the above Answer: B. Awareness, interest and evaluation getting them to try the product quickly Rationale: Marketers, particularly those involved in a new-product launch, want to move consumers through the process as quickly as possible. One reason to spend heavily at the product launch phase is to move people through awareness, interest, and evaluation, getting them to try the product quickly. 92. _______________ are product opinion leaders who seek out new products consistent with their personal self-image. A. Innovators B. Early majority C. Early adopters D. Late majority E. Laggards Answer: C. Early adopters Rationale: Early adopters are product opinion leaders who seek out new products consistent with their personal self-image. This group is not price-sensitive and is willing to pay the price premium for a product. At the same time, early adopters demand a high level of personalized service and product features. 93. Research into the adoption process of the Internet in the United States found it very similar to the _______________. A. Adoption of color television in the 1960's B. Adoption of transistor radios C. Adoption of ham radio in the 1930's D. Adoption of desktop operating systems E. Adoption of cell phones Answer: A. Adoption of color television in the 1960's Rationale: Internet adoption followed a relatively traditional curve for adoption that color televisions displayed. 94. Laggards are people in the adoption process who _______________. A. Purchase during the maturation stage B. Put off purchasing until there is no other option C. Are price sensitive and look for simplified products D. Are price sensitive E. Take the product into the main stream Answer: B. Put off purchasing until there is no other option Rationale: Laggards are relatively unimportant in the adoption process as they only buy at the very end of the life of the product when there are few choices left. 95. Innovators are product enthusiasts who enjoy being the first people to try a new product. They represent _______________ of the market. A. 2.5 percent B. 13.5 percent C. 16.0 percent D. 34.5 percent E. 10.5 percent Answer: A. 2.5 percent Rationale: Innovators are a very small part of the total buying public and generally only represent about 2.5% of the potential market. 96. Product followers are price-sensitive and risk averse. They purchase older generation or discontinued models with lower prices and fewer features. This group of adopters is called the _______________. A. Laggards B. Unsure C. Tried and true D. Late majority E. Cheap and cheerful Answer: D. Late majority Rationale: The late majority is price sensitive and risk averse. They wait for older and discontinued models. 97. A service is a product in a sense that it represents a bundle of benefits that can satisfy customer wants and needs, yet it does so _______________. A. Without people B. Without price perceptions C. Without physical form D. Without time utility E. Without affecting the product experience Answer: C. Without physical form Rationale: Services have no physical form. 98. More than _______________ of jobs in the United States are service-related. A. 20 percent of all jobs B. 40 percent of all jobs C. 60 percent of all jobs D. 80 percent of all jobs E. 100 percent of all jobs Answer: D. 80 percent of all jobs Rationale: More than 80 percent of jobs in the United States are service-related. 99. Service jobs have _______________ in the United States over the last 30 to 40 years. A. Decreased B. Increased C. Stayed the same D. Been in decline E. None of the above Answer: B. Increased Rationale: Service jobs have increased in the US over the last 30 years. 100. Firms are sometimes reluctant to invest in great service, largely because _______________. A. It is difficult to change employees' mindset B. It is difficult to make consumers aware that they are receiving great service C. It does not contribute to the total product experience D. It takes time and patience before a return on the investment is noticeable E. It does not provide any competitive advantage Answer: D. It takes time and patience before a return on the investment is noticeable Rationale: Many firms are reluctant to invest in great service, largely because it takes time and patience before a return on the investment may be noticeable. But a great service can be a core differentiator and it can provide sustainable competitive advantage. 101. The traditional division between goods and services is outdated. The shift in focus to services is a shift from the means and the producer perspective to the _______________ perspective. A. Necessity and income B. Utilization and customer C. Time and union D. Customer and employee E. Society and nature Answer: B. Utilization and customer Rationale: As per the new dominant logic for marketing, the traditional division between goods and services is long outdated. The shift in focus to services is a shift from the means and the producer perspective to the utilization and the customer perspective. 102. It is said that customers do not buy goods or services: They buy _______________. A. Products that come with some services B. Offerings which render services which create value C. Services that come in a variety of sizes and shapes D. Technology that is a service orientation E. All of the above Answer: B. Offerings which render services which create value Rationale: As per an article titled "Evolving to a New Dominant Logic for Marketing" which appeared in the Journal of Marketing, the traditional division between goods and services is long outdated and customers do not buy goods and services, rather they buy offerings which render services which create value. 103. Intangibility of a service means, _______________. A. The service cannot be seen, heard, tasted, or felt by a customer B. You can carry a service out with you from the retailer C. You cannot see the product or feel it D. You can sense the service through the seven senses of the body E. None of the above Answer: A. The service cannot be seen, heard, tasted, or felt by a customer Rationale: A service cannot be experienced through the physical senses. It cannot be seen, heard, tasted, felt, or smelled by a customer. 104. A customer can't really experience a service until it is actually consumed. This characteristic represents the _______________ of a service. A. Perishability B. Intangibility C. Inseparability D. Variability E. Scalability Answer: C. Inseparability Rationale: A service is produced and consumed at the same time and cannot be separated from its provider. 105. _______________ of a service means that because it can't be separated from the provider, a service's quality can only be as good as that of the provider him-/herself. A. Perishability B. Intangibility C. Inseparability D. Variability E. Scalability Answer: D. Variability Rationale: Variability of a service means that it cannot be separated from its provider so its quality can only be as good as that of the provider him-/herself. Thus, it is difficult to standardize services. 106. One way to make a service more tangible is to have customers _______________. A. Read about it on a web site B. Experience the service through a trial period of time C. Receive a brochure that highlights the advantages and disadvantages of the service D. Google the service and see who provides the services in their area E. None of the above Answer: B. Experience the service through a trial period of time Rationale: Trial periods are one of the most powerful ways to get a customer to sign up for a service. Short Answer Questions 107. How do consumer package goods companies use product extension? How does this relate to new product development? Answer: All companies seem to use new and improved or product variations to extend a brand. Packaging and size will vary. Examples will vary. Consumer package goods companies use product extension by introducing variations or extensions of existing products to target different segments or enhance appeal, which relates to new product development by leveraging existing brand equity and customer familiarity to minimize risk and capitalize on market opportunities. 108. How have cell phones been repositioned since they were introduced? Answer: Originally cell phone service providers positioned the phones as a safety tool targeting individuals such as working women and moms. As the product become more widely adopted, the positioning of the product changed to become an important work tool. As the market for cell phones expands, the positioning has evolved to include younger users. Cell phones are the dominant communication device for teenagers, and phones have been created for kids as young as seven. 109. How is cost reduction used to create new products? Answer: Cost reduction, as the name implies, is a specific method for introducing lower-cost products that frequently focus on value-oriented product price points in the product mix. Generally this approach involves eliminating or reducing features, using less-expensive materials, or altering the service or warranty to offer the product at a lower price. 110. What are the two ways that companies may get new products? Answer: Acquisition or internal development. Companies may get new products through innovation (creating entirely new products) or acquisition (buying existing products or companies). 111. What is the biggest challenge small companies face in new product development? Answer: Raising capital to support the NPD process. 112. How does Frito-Lay defend itself when competitors introduce new products? Answer: Frito-Lay controls the snack aisle in grocery stores around the world and fights hard to maintain that dominance. When new competitors try to gain shelf space, Frito-Lay will introduce coupons and retailer incentives to keep its position on the shelf. For new products it is particularly important to consider how market leaders will react to an introduction. Frito-Lay, for example, has a great deal of leverage with retailers, which makes it difficult to get critical shelf space. Moreover, a loyal customer base is less likely to try new products. 113. Some computer makers are designing laptops that are encased in bamboo and have many recycled parts. Describe the external pressures that may drive this. Answer: Both government regulations and consumer preferences could cause the companies to design eco-friendly products. Competitive pressures may be another factor. 114. What are three major activities in new-product development? Answer: (1) Identify product opportunities (2) Define the product opportunity (3) Develop the product opportunity. 115. What are the four sources of new product idea generation? Answer: Internal, external, customers, distributors 116. What are the two mistakes associated with rejecting or moving forward with a new product design? Answer: Go-to-market mistake and stop-to-market mistake 117. What are the three tasks in the development stage of the new product process? Answer: • Define and test the product idea • Create a marketing strategy for the product • Analyze the product's business case 118. What is a business case analysis? Answer: It is an overall evaluation of the product and usually assesses the product's probability of success. 119. What are the three separate purchase situations used in calculating total demand? Answer: • New purchases — first-time sales. With new products, these sales are called trial purchases. This is also calculated as the trial rate (how many individuals in a particular target market have tried the product). • Repeat purchases — the number of products purchased by the same customer. This can be important with frequently purchased products such as convenience goods that rely on frequent repeat purchases for success. • Replacement purchases — the number of products purchased to replace existing products that have become obsolete or have malfunctioned. Estimates are made on the number of product failures in any given year based on the expected product life. As more products are sold into a market through first time and repeat purchases, the number of replacement sales will increase. 120. What is the difference between alpha and beta testing? Answer: Alpha is internal testing; beta is external testing, usually by customers. 121. What are the four key decisions managers make in regards to consumer product testing? Where to test? How long to test? What data to collect? Which metrics will be used to determine further action? Answer: Managers make key decisions in consumer product testing regarding where to test (location and market segment), how long to test (duration and testing phases), what data to collect (feedback, usage statistics), and which metrics to use (sales figures, customer satisfaction scores) to decide on further actions and improvements. 122. Why is the early success of a new product launch so important? Give an example. Answer: Products that start poorly seldom recover. MS Vista is an example. The early success of a new product launch is crucial because it sets the tone for future adoption and market penetration. For example, the iPhone's successful launch in 2007 not only established Apple as a leader in the smartphone market but also generated momentum and consumer excitement that contributed to its long-term success and market dominance. 123. Which groups of consumers as defined in the consumer product adoption process are of particular interest to companies launching new products? Answer: Innovators and early adopters. Companies launching new products are particularly interested in early adopters and early majority groups of consumers, as they are the first to try new products and can influence others' adoption decisions. 124. What is the rate at which a product is accepted called? Answer: The adoption process. The rate at which a product is accepted is called its adoption rate. 125. Which categories do 2/3s of all adopters fall into? Answer: Early and late majority. Two-thirds of all adopters fall into the categories of early majority and late majority in the consumer product adoption process. 126. Describe a situation where you were an innovator or early majority and another where you were a laggard. Answer: As an innovator, I adopted a new productivity software tool at its beta stage to streamline team workflows. As a laggard, I waited several years before upgrading to the latest smartphone model, sticking with my older device until it became necessary to upgrade due to performance issues. Essay Questions 127. What are new-to-the-world products? What are the two categories these fall into? Give an example of each. Answer: Most people would define new as a product that has not been available before or bears little resemblance to an existing product, and one type of new product is actually referred to as a new-to-the-world product, because it has not been available before. Sometimes new-to-the-world products are so innovative they create a fundamental change in the marketplace and are known as disruptive innovation. They are called disruptive because they shift people's perspective and frequently alter their behavior by offering dramatically simpler, more convenient, and usually less-expensive products than currently exist. In the process they frequently make existing products less desirable. Desktop computers, cell phones, and PDAs are examples of new-to-the-world products considered disruptive innovations. A second type of new-to-the-world product, sustaining innovations, are newer, products that target, for the most part, existing customers. Sustaining innovations can be revolutionary by taking the market in a new direction. They can also be upgrades or modifications to existing products and represent incremental enhancements to current products. Examples: MP3 players were disruptive when introduced. Now Sustaining innovations include players with improved memory. 128. Identify three internal issues that may contribute to new product failure. Answer: Making bad decisions by not identifying the value proposition, designing and building a product that fails to meet customer expectations, poor marketing communications, inadequate distribution of the product, or incorrectly pricing the product are all factors that increase the likelihood of new-product failure. 8 Other factors also contribute to a lack of success. Design and development of new products is expensive, and companies sometimes fail to adequately capitalize the process. This occurs in two ways. If new-product development does not follow a timeline, development costs will, all too frequently, exceed established budgets. Inadequate of resource allocation forces companies to slow the development, redirect resources for one project to another, or even eliminate projects before product development has been completed. 129. Discuss three external factors that may contribute to new produce failures. How have Japanese carmakers gained a competitive advantage over U.S. automakers? Answer: Competitive pressure, changes in target markets, and environmental conditions mandate shorter product development time. The Japanese auto manufacturers for years have enjoyed an advantage in product development, pushing U.S. automakers to develop cars at a much faster pace. U.S. manufacturers have reduced new-car development from nearly 5 years (in the 1980s) to 36 months; however, Toyota and Honda continued to shorten their time to market and now develop a new model in less than 30 months, which mean cars more accurately. 130. Expanded Metal Products is an industrial manufacturer that supplies a wide range of markets. From commercial air conditioner covers and industrial flooring to exhaust vents used in manufacturing facilities, EMP has over 45,000 products that mostly have been developed in-house. Now the company has hired you as a consultant to lead it to generate new product ideas from outside the firm. What will you do? Answer: • Look for start-up companies with great ideas and products to acquire • Talk to customers. They can identify problems that need solving. • Talk to distributors. They are often the best link with customers, particularly for small firms without a national sales force. 131. What are some of the ethical issues of having KidCare TV in pediatricians' offices? Answer: • Pediatricians tell kids and their parents that kids should exercise more and get off the couch yet they seem to be reinforcing this behavior with TV in the waiting rooms. • Parents may object to the televisions. • Some of the ad sponsors may have products that parents object to. 132. A cross-functional team at Electronic Toys has been assembled to work on the product definition for a concept that has passed through the screening process. What three objectives should the team focus on? Answer: Product definition has three objectives. First, it defines the product's value proposition; what customer needs are being addressed and, in broad terms, at what price. Second, the definition briefly identifies the target market(s) and what is the purchase frequency. Third, the definition delineates the product's characteristics (look, feel, physical elements, and features of the product). As the product moves through development, the physical characteristics become more defined and particular features, often at different price points, are included in the prototypes. 133. Wilson has been tasked with asking customers what they think about a new product concept. What kinds of questions should he ask? What role can customers play in testing the product concept? Answer: Target customers are useful in defining the product concept. Companies present models, limited prototypes, and verbal or written descriptions of the product concept to customers, individually or in focus groups. Computer graphics are also used to depict elements of the product and even functionality. During this phase, companies start getting market input to refine and develop the concept. Customers are asked about their attitudes toward the product idea and if they perceive the idea as different from other products on the market. Product developers want to know, Would you buy this product and how much are you willing to pay? The company needs to know if the product is appealing to the target audience. A second question is also essential in this testing, What would you like to change about the product concept? If customers suggest changes that are not feasible (too costly to implement, not technically possible), it dramatically reduces the viability of the project. Whenever possible, however, customer feedback is incorporated into the product's development. By making adjustments during this phase rather than waiting until after the launch, companies can increase the probability of success. Since the information is so critical, researchers use large samples of target customers to ensure confidence in the findings. 134. Why does a firm develop marketing strategy during the new product development process? Why doesn't the firm simply wait until the product is ready to be launched to develop the marketing strategy? Isn't it a waste of time to develop strategy for a product that may never get to market? Answer: First, defining the target market is helpful to the product developers. In addition to the basic market information (size, geography, and demographics), product developers appreciate knowing how the product will be used (context, environment) and psychographics of the market (the market's activities, interests, and opinions). Marketers also assess the market share potential at critical points in time (how much market share can the new product get after one year). At this point, tentative pricing, distribution, and marketing communications strategies are created that will be adapted as the product gets closer to rollout. Finally, marketing managers begin to develop budgets for the product launch and estimates of the marketing communications budget, manufacturing capacity, and logistical needs. 135. What are the five states of the innovation diffusion process? Answer: 1. Awareness— know of the product, but insufficient information to move forward through the adoption process. 2. Interest— receive additional information (advertising, word of mouth) and motivated to seek out added information for further evaluation. 3. Evaluation— combine all information (word of mouth, reviews, advertising) and evaluate the product for trial purchase. 4. Trial— purchase the product for the purpose of making a value decision. 5. Adoption— purchase the product with the intent of becoming a dependable user. 136. Draw the consumer product adoption chart and include the percent of consumers in each category. Answer: See Exhibit 12.5 Here is a simplified representation of the consumer product adoption chart: 1. Innovators (2.5%) 2. Early Adopters (13.5%) 3. Early Majority (34%) 4. Late Majority (34%) 5. Laggards (16%) Each category represents the percentage of consumers who adopt a new product over time, following the diffusion curve. Test Bank for Essentials of Marketing Management Greg W. Marshall, Mark W. Johnston 9780078028786, 9780071082020, 9780077400187

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