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Chapter 2 Ideation and Concept Development

“Creativity, as has been said, consists largely of

rearranging what we know in order to find out what we
do not know. Hence, to think creatively, we must be able
to look afresh at what we normally take for granted.”
— George Kneller, author of The Art and Science of
Creativity

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Learning Objectives

At the conclusion of this chapter, students should be able to do the following

critical activities related to the new product development cycle:

1. Learn how to engage in “design thinking” and approaches to idea generation.

2. Look into consumer psychology and new product adoption.

3. Connect product concepts to perceived needs.

4. Based on the learnings, review the business plan prepared in ECC13 and revise
the portion of the plan to adapt to the knowledge gained from this chapter.

Ideation is the process of coming up with an idea. It is using creativity and questions
like “What if?” to imagine ways something can be done differently. The ideation stage is
critical to ensure that you are generating good ideas from the start. It involves seeing
problems and opportunities, brainstorming around the problems you identify, and doing
research to test your assumptions about the market, your customers, and your idea.
Refining that initial idea involves assessing the market, looking at trends, and asking
questions (and more questions)—and learning from potential customers, investors, and
research whether your idea is a good one. The design process consists of a series of steps
to test assumptions and ideas. Ideation falls within a larger design process that begins with
understanding who you are serving; empathizing, understanding, and defining the needs of
that target audience; then ideating around what is needed.

How to Engage in Design Thinking.

In the Stanford School Design Thinking Process, there six stages to design:

 Empathizing
 Defining
 Ideating
 Prototyping
 Testing
 Sharing

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According to 2012 research by Harvard Business School instructor Shikhar Ghosh,

75% of venture-backed startups fail. Ideas are like opinions—everyone has one. If the
founders of those failed companies could have answered that question as to whether their
idea was the next big thing…well everyone wants that guarantee. But entrepreneurship is
risky. Startups are risky. You and your team are using your time and your intellectual
property (ideas) to create something new. Generating a great idea from the start is part of
a larger set of success factors such as the expertise of the founders, the competitive
landscape, speed to market, and other factors.
These other success factors include:

 The composition of the team itself;

 The execution of the concept. Is the team adaptable, effective and efficient?
 The structure or business model shows a clear revenue path and immediate
revenue stream;
 The structure of funding; and
 The timing of the idea and its entry into the marketplace.

Design Thinking is a design methodology that provides a solution-based approach

to solving problems. It’s extremely useful in tackling complex problems that are ill-defined
or unknown, by understanding the human needs involved, by re-framing the problem in
human-centric ways, by creating many ideas in brainstorming sessions, and by adopting a
hands-on approach in prototyping and testing. Understanding these five stages of Design
Thinking will empower anyone to apply the Design Thinking methods in order to solve
complex problems that occur around us — in our companies, in our countries, and even on
the scale of our planet.

The five-stage Design Thinking model proposed by the Hasso-Plattner Institute of

Design at Stanford are as follows:

1. Empathize. The first stage of the Design Thinking process is to gain an

empathic understanding of the problem you are trying to solve. This involves
consulting experts to find out more about the area of concern through observing,
engaging and empathizing with people to understand their experiences and
motivations, as well as immersing yourself in the physical environment so you
can gain a deeper personal understanding of the issues involved. Empathy is
crucial to a human-centered design process such as Design Thinking, and
empathy allows design thinkers to set aside their own assumptions about the
world in order to gain insight into users and their needs.

Depending on time constraints, a substantial amount of information is gathered

at this stage to use during the next stage and to develop the best possible
understanding of the users, their needs, and the problems that underlie the
development of that particular product.

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2. Define (the problem). During the Define stage, you put together the information
you have created and gathered during the Empathise stage. This is where you
will analyze your observations and synthesise them in order to define the core
problems that you and your team have identified up to this point. You should
seek to define the problem as a problem statement in a human-centred manner.

To illustrate, instead of defining the problem as your own wish or a need of the
company such as, “We need to increase our food-product market share among
young teenage girls by 5%,” a much better way to define the problem would be,
“Teenage girls need to eat nutritious food in order to thrive, be healthy and
grow.”

The Define stage will help the designers in your team gather great ideas to
establish features, functions, and any other elements that will allow them to
solve the problems or, at the very least, allow users to resolve issues themselves
with the minimum of difficulty. In the Define stage you will start to progress to
the third stage, Ideate, by asking questions which can help you look for ideas
for solutions by asking: “How might we… encourage teenage girls to perform an
action that benefits them and also involves your company’s food-product or
service?”

3. Ideate. During the third stage of the Design Thinking process, designers are
ready to start generating ideas. You’ve grown to understand your users and their
needs in the Empathise stage, and you’ve analysed and synthesised your
observations in the Define stage, and ended up with a human-centered problem
statement. With this solid background, you and your team members can start to
"think outside the box" to identify new solutions to the problem statement you’ve
created, and you can start to look for alternative ways of viewing the problem.
There are hundreds of Ideation techniques such as Brainstorm, Brainwrite,
Worst Possible Idea, and SCAMPER. Brainstorm and Worst Possible Idea
sessions are typically used to stimulate free thinking and to expand the problem
space. It is important to get as many ideas or problem solutions as possible at
the beginning of the Ideation phase. You should pick some other Ideation
techniques by the end of the Ideation phase to help you investigate and test your
ideas so you can find the best way to either solve a problem or provide the
elements required to circumvent it.

4. Prototype. The design team will now produce a number of inexpensive, scaled
down versions of the product or specific features found within the product, so
they can investigate the problem solutions generated in the previous stage.
Prototypes may be shared and tested within the team itself, in other
departments, or on a small group of people outside the design team. This is an
experimental phase, and the aim is to identify the best possible solution for each
of the problems identified during the first three stages. The solutions are
implemented within the prototypes, and, one by one, they are investigated and
either accepted, improved and re-examined, or rejected on the basis of the
users’ experiences. By the end of this stage, the design team will have a better
idea of the constraints inherent to the product and the problems that are present,
and have a clearer view of how real users would behave, think, and feel when
interacting with the end product.

5. Test. Designers or evaluators rigorously test the complete product using the
best solutions identified during the prototyping phase. This is the final stage of
the 5 stage-model, but in an iterative process, the results generated during the
testing phase are often used to redefine one or more problems and inform the

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understanding of the users, the conditions of use, how people think, behave,
and feel, and to empathise. Even during this phase, alterations and refinements
are made in order to rule out problem solutions and derive as deep an
understanding of the product and its users as possible.

6. Share. Innovations are most powerful when shared from beginning to end, from
inception to impact, because every step of the way is rife with lessons. Let’s
expand the Design Process to recognize that power.

The best part about sharing is that it, like prototyping and testing before it, it’s
an ongoing process. It’s no wonder startup founders turn to blogging and content
marketing to expose their trials and errors in launching new companies and
products. Many people recognize that the more information we share, the
greater collective knowledge we have to draw from. Sharing is deemed honest,
and honesty begets trust. Similarly, we encourage our students to share their
improvements and shortcomings with their classmates, until they’ve designed
something they feel has really reached its true potential.

Approaches to Idea Generation in Product Development.

The success of your business probably depends on how good and creative you are.
The ability to come up with fresh and exciting ideas is what separates top-performers from
their less successful peers, so you definitely need to think of how to improve this skill.

Idea generation is defined as the process of creating, developing and

communicating abstract, concrete, or visual concepts. To put it simply, it’s the process that
requires finding new solutions for practical problems in all fields of life and work.

But how can you improve idea generation? Is there a way or tactic to strengthen
your problem-solving capacity? The simple answer is: Yes, there is. As a matter of fact,
there are many different techniques you can try, so keep reading to discover seven creative
idea generation methods.

Idea generation is the first step for any product development. This requires you to
look for feasible product options that can be executed. It is a very important step for
organizations to solve their problems.

It requires you to do market research and SWOT analysis. You should aim to come
up with an idea that is unique from your competitors and can be used profitably.

Idea Generation Process. The process may be different for different organizations
and different people. But there are three main steps in the process. It starts with the
identification of the question or the problem we need to solve.

After which we need to come up with ideas and probable solutions. Finally, in the
third stage, we select the most suitable idea and execute it. For example, let’s suppose you
are opening up a restaurant.

So firstly, you need to identify what question you need to answer. Let’s assume you
want to decide upon a name for the restaurant. Now you will use different techniques
(brainstorming, mind mapping, etc) to come up with ideas for names.

In the last step, you will choose the most appropriate name from the different names
you came up with within the second step.

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Idea Generation Techniques. Now we will see the different idea generation
techniques in detail.

1. Mind Mapping. It is a technique of presenting the information. Here we show the

links between the different elements or the pieces of information. The links or
connection is usually shown with the help of lines and arrows. It’s a visual way of
presenting the information.

For example, let’s suppose you want a name for your new application. You will start
by writing the main topic in the centre of a paper, which here is the name for your
new application.

From the centre point, you will have arrows pointing out. These arrows will point to
the main things to be kept in mind while thinking of a name like guidelines,
visualization, productivity, etc.

Now from every key aspect, there will be more arrows pointing out. These arrows
will describe the key aspect in detail. Like ‘guidelines’ will talk about the name being
able to express what the application does, following the naming scheme, etc.

2. Reverse Thinking. As is very clear from the name itself this technique asks us to
think oppositely. Instead of working on the problem in front of us, we work on the
exact opposite of it.

For example, let us assume you want to know ‘how to increase your followers on
social media platform’. According to this technique, you will instead think of ‘how will
I not increase my followers on social media platform’.

To this question, you will get answers like, by not posting regularly, or posting low-
quality content, etc. Now you just have to reverse your answers.

So, to increase followers on a social media platform you should post high-quality
content regularly. This idea generation technique works on the concept that it’s
easier to come up with negative suggestions.

3. Brainstorming. This technique is quantitative meaning that you come up with a

large number of ideas. Here a group comes up with a different probable solution to
the problem.

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For example, if you along with some of your colleagues are trying to come up with
a tagline for your product. And each one of you gives your ideas, then that is called
brainstorming.

4. Scamper. The word SCAMPER is an acronym.

S -Substitute

C – Combine

A – Adapt

M – Modify

P – Put to another use

E – Eliminate

R – Reverse

Bob Eberle developed this technique. Each

part of the acronym helps us think and ask
questions, that result in generating ideas.

For example, if you are a clothes

manufacturing company you can think of
‘substitute’ your current material with a
sustainable, eco-friendly option. You could
also ‘put it to other uses’ by recycling the
waste material.

5. Synectic. George M. Prince and Willian J. J. Gordon developed this technique. In

this technique, we take apart a thing and then put it back together. This helps us get
a better understanding of how things work.

6. Role Playing. In this technique, the participants take up roles to play. These roles
are different from the ones they usually play. It adds an element of fun and helps
get innovative ideas.

For example, you could take up the roles of customers and discuss your
expectations and what you want from products. This could lead you to stumble upon
some good ideas.

7. Story Boarding. This technique refers to the process of making storyboards to

generate ideas. Storyboards use pictures, illustrations, and other information to
better present the ideas.

For example, suppose you are working on an idea for an advertisement. You can
portray the different scenes in the form of a storyboard. This helps you in better
visualization and you can make changes accordingly.

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8. Brainwriting. In this technique, a group of people writes their ideas on a piece of

paper. After the designated time for writing is over the paper is given to a different
person.

Now this person reads the ideas on the paper they got and adds their ideas on the
paper. This continues until everyone has put their ideas on all the papers. And
following this, there is a discussion on each idea.

9. Forced Relationship. This technique helps to come up with unique ideas. Here you
take two unrelated things and imagine putting them together to see what new thing
you can come up with.

For example, take a calculator and a pencil, these are unrelated to each other. Now
try putting them together. You might get some interesting ideas like a calculator with
a touch screen and a pencil to write on it and a lot more.

10. Collaboration. This technique is self-explanatory. Here you collaborate with others
to come up with ideas. If you collaborate with a diverse group of people your ideas
will be more unique.

This happens because every person brings their different perspective. For example,
if you want to increase the sale of a particular product you might want to collaborate
with industry experts, specialists, or people working in domains other than sales.

11. The 5 W’s. Who, What, Where, When and Why are the five W’s. Answering these
five W’s helps us achieve a very holistic view of the topic under discussion. And it is
an efficient way to come up with solutions and ideas.

For example, suppose you want to create a new product or a service. You can do
so by asking questions like, who would use the product, why would people buy it,
what would it do, etc.

12. Listening. People prove to be a very good recourse when you are trying to generate
ideas. Even those who aren’t your employees and customers can be very
resourceful.

So, you must always go beyond your immediate circle and invest in listening.
Socializing with people in your immediate social circle and even those beyond it can
be very effective.

13. Accidental Genius. This idea generation technique believes that writing can help
you come up with good ideas. Here writing is believed to be a trigger for ideas. This
technique asks you to write freely without any editing.

So, whatever problem you are facing just start writing the answer without being
concerned about the right or wrong aspect of it.

14. Visualization. In this technique, we approach the problem visually. This is because
visualization makes things easy to understand. And as a result, we can come up
with ideas and solutions easily. For example, suppose you want a new setup for
your production unit.

You can have pictures taken of the current setup and work on it. Looking at the
pictures will give you a better idea. You will be able to make changes to the setup
so that it increases productivity and saves on time.

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15. Removing Assumptions. There are a lot of assumptions about how things work.
This technique requires us to list all the assumptions and then start removing them
one by one.

These assumptions work as stimuli for us to come up with new ideas. For example,
suppose you want to open a new school with innovative features. First list down all
the assumptions you have about a school,

 There should be physical classrooms

 A fixed curriculum decided beforehand
 More emphasis on theoretical knowledge

Now remove each assumption one by now. Let’s remove the need for a physical
classroom. You could open a school that has online classes or has classes
outdoors. In this way doing away with an assumption will help you explore new
ideas.

Consumer Psychology and New Product Adoption

It is interesting how consumers learn about products for the first time and decide
whether to adopt them. The adoption process for a new product is the mental process
through which an individual passes from first learning about an innovation to final adoption”
and adoption as the decision by an individual to become a regular user of the product. A
new product is a good, service, or idea perceived by some potential customers as new.

Concept of consumer adoption process. Though most buyers of a product have

some common needs, they are not alike in all respects. Purchasers in the initial stages of
a product’s life are considerably different from those who make their purchases later. Some
of their demographic characteristics may vary, their buying behavior may be distinct, and
their purchasing motives may differ.

To describe the various types of buyers who purchase a product over the course of
its life cycle, the marketing experts proposed an adoption process. To build an effective
strategy for market penetration, management must understand the consumer adoption
process. Kotler defines adoption as an individual’s decision to become a regular user of a
product.

There was a time when marketers would offer their products to the mass market.
Under this concept, people everywhere were thought to buy a company’s product, and
consequently, companies were inviting everybody to buy their products by making them
available in wider areas. It would cost companies to spend heavily on promotion and
distribution, most of which were wasted. It led to the development of a concept called “heavy
­user target marketing.”

Under this concept, companies would target heavy users initially with their offers.
This also suffered some limitations as the heavy users vary in their tastes, preferences,
adopter status, and brand loyalty levels. From this experience, companies now prefer
approaching the early adopters with their offers. To understand the consumer adoption
process, you should understand, in the beginning, two other concepts – innovation and
innovation diffusion process. If you have clear ideas on these two, you will identify early
adopters by utilizing your knowledge.

“Innovation refers to any good, service, or idea that is perceived by someone as

new.” This suggests that even an old product can be considered by someone as an

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innovation, provided he perceives it as new. The reason may be that he was not exposed
to the product until now. On the contrary, the innovation diffusion process is the spread of
a new idea from its source of invention or creation to its final adopters or buyers/users.

We are now in a position to define the consumer adoption process. “The consumer
adoption process focuses on the mental process through which an individual passes from
first hearing about an innovation to final adoption.” This suggests that an adopter of an
innovation passes through five stages. In the following section, we shall turn our attention
to the stages of the adoption process.

Consumers go through 5 stages in the process of adopting a new product. These

are: (a) Product Awareness, (b) Product Interest, (c) Product Evaluation, (d) Product Trial,
and (e) Product Adoption. These stages imply that the new-product marketer should
consider how to help consumers move through these stages. A manufacturer of large-
screen televisions may discover that many consumers in the interest stage do not move to
the trial stage because of uncertainty and the large investment.

If these same consumers would be willing to use a large-screen television on a trial

basis for a small fee, the manufacturer should consider offering a trial-use plan with the
option to buy.

For adopting a new product, at first, the consumer becomes aware of the new
product but does not have information about it. The consumer shows interest and searches
for information about the new product. In the third stage, the consumer evaluates whether
trying the new product is worthwhile. After that, the consumer tries the new product on a
limited scale to improve its value assessment. At the last stage, the consumer decides to
make full and regular use of the new product.

Product Awareness. The

consumer becomes aware of the
new product but lacks information
about it. Initially, the consumer
must become aware of the new
product. Awareness leads to
interest, and the customer seeks
information about the new
product. Whether an innovation is
continuous or not, people are
either little aware or aware of it
initially.

Innovator, therefore, has to inform the adopters about the innovation. In the awareness
stage, individuals become aware that the product exists, but they have little information
about it and are not concerned about getting more.

Adopters may be informed through advertising, publicity, or any other effort of the
marketer.

Product Interest. The consumer seeks information about the new product. Once
the information has been gathered, the consumer enters the evaluation stage and considers
buying the new product. By this time, the innovation is introduced. It is now the time for the
decision-makers to determine whether the innovation relates to their needs. They enter the
interest stage when they are motivated to get information about its features, uses,
advantages, disadvantages, price, or location.

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Interest may or may not sparked, depending on whether the decision-makers

perceive the innovation as a relevant, feasible alternative to existing items.

Product Evaluation. Next, in the trial stage, the consumer tries the product on a
small scale to improve its value estimate. The consumer considers whether trying the new
product makes sense. Adopters of the innovations have to establish some evaluation
measures to compare the new product with existing ones.

During the evaluation stage, individuals consider whether the product will satisfy
certain critical criteria for meeting their specific needs. The potential adopters consider the
innovation’s benefits and determine whether to try it.

Product Trial. The consumer tries the new product on a small scale to improve their
estimate of its value. If the consumer is satisfied with the product, they enter the adoption
stage, deciding to use the new product thoroughly and regularly. At this stage, the potential
adopters examine, test, or try the innovative product to determine its usefulness.

In this stage, they use or experience the product for the first time, possibly by
purchasing a small quantity, taking advantage of a free sample or demonstration, or
borrowing the product from someone. During this stage, potential adopters determine the
product’s usefulness under the specific conditions they need.

The trial stage for innovations is complex. Successful introduction depends greatly
on the new product’s characteristics, benefits, and perceived risks. Effective communication
is the key to achieving trial by consumers.

Product Adoption. The consumer decides to make full and regular use of the new
product. The new product is a good, service, or idea perceived by some potential customers
as new. Individuals move into the adoption stage when choosing that specific product when
they need a product of that general type. Here the buyers purchase the new product and
can be expected to use it to solve problems. So, this final stage of the process is indicated
most directly by sales, but the innovation’s visibility is also a success measure.

However, please do not assume that they will eventually adopt the new product
because a person enters the adoption process. Rejection may occur after any stage,
including the adoption stage.

Factors Affecting the Adoption Process. The three important factors affecting the
adoption process are people’s readiness to try new products, personal influence, and
innovation characteristics.

We shall now take up a brief discussion on how they influence the product adoption
process:

People Readiness. People differ in their readiness to accept new products,

services, opinions, and ideas. Some people always prefer adopting new market offers.
Those who are venturesome and enjoy taking risks, younger in age, have higher social
status, and have favorable financial positions will be the innovators. Those who are guided
by respect treated as opinion leaders and consider themselves as cautious adopt early.
The deliberate persons are usually the early majority. Those who are skeptical and follow
the majority adopt once a large number of people try the product.

Those who are tradition-bound, having insular attitudes, and are suspicious, usually
accept a product when the masses use it.

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To understand adopter categories and locate the innovators and early adopters, a
marketer should undertake an extensive study based on potential customers’ demographic,
psychographic, and media characteristics.

Personal Influence. Since we are social and human beings, we are always subject
to interpersonal influence in our decisions. The degree of personal influence varies
according to the buying situation and individual in question.

There are some buying situations where we are influenced more by others. Again,
personality type determines the susceptibility of interpersonal influence.

The submissive type of person is more influenced by others than do the aggressive
type of persons. In complex buying situation, particularly while buying expensive items,
personal influence works more than in simple buying situation and in buying small items.

Characteristics of the Innovation Influence Adoption Process. The following

five characteristics of an innovation influence the adoption process.

1. Relative Advantage: If a new product is perceived as superior to existing products,

it will be adopted quickly.

2. Compatibility: If innovation is considered consistent with the individuals’ values

and experiences, it will soon be adopted.

3. Complexity: If innovation is perceived as complex by a particular group of people,

they will adopt it slowly.

4. Divisibility: If there is a scope of trying the innovation on a test or sample basis,

the chances will be adopted soon.

5. Communicability: If the innovation benefits can be described easily or observed,

it will be adopted fast.

There are some other characteristics of the innovation that also influence the rate
of adoption of the innovation. They are the cost, risk and uncertainty, technical standard,
social acceptance, and so on.

To be successful, a marketer should study the factors as detail as possible, and his
strategy should be based on the findings of the said study.

Implication of the Adoption Process. The adoption process described above has
several implications for marketers. First, promotion should be used to create widespread
awareness of the new product and its benefits. Samples or simulated trials should be
arranged to help buyers make initial purchase decisions.

At the same time, marketers should emphasize quality control and provide solid
guarantees to reinforce buyer opinion during the evaluation stage.

Finally, production and physical distribution must be linked to patterns of adoption

and repeat purchases.

How to Make Potential Consumers to Adopt the New Product. Its characteristics
influence the rate of adoption of a new product. Some products gain quick acceptance,
while others may take a long time.

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Five characteristics play an important role in affecting the rate of adoption of an

innovation. These are:

1. Relative Advantage – the degree to which the innovation seems to be superior

to existing products.

2. Compatibility – the degree to which the innovation conforms to the values and
experiences of potential consumers.

3. Complexity – the degree to which the innovation is difficult to recognize or use.

4. Divisibility – the degree to which the innovation may be tried on a small scale
basis.

5. Communicability – the degree to which the results of using the innovation can
be observed or communicated to others.

In addition to the above five characteristics, some other characteristics may also
affect the rate of adoption. These are initial and ongoing costs, risk and uncertainty, and
social approval. In designing the new product and its marketing program, the new-product
marketer has to study all these factors.

Conclusions. Understanding about five stages of the consumer adoption process

and the five types of adopters is also important for a new product marketer. People differ
greatly in their readiness to try new products. People can be classified into five adopter
categories.

The adoption process for a new product is the mental process through which an
individual passes from first learning about an innovation to final adoption. The five stages
of the consumer adoption process are awareness, interest, evaluation, trial, and adoption.

But for products and categories that already exist in the market, the five stages of
the buyer decision process are different.

Not all consumers buy a new product at the same time. Some buy it immediately
after the product is launched. Some adopt it immediately after the innovators. Others take
a longer time to adopt a new product.

Yet there is another category of customers who buy the product when it reaches the mature
stage. Consumer undergoes a process of adopting a new product considering many
aspects and evaluating theses aspects.

Innovation has got its characteristics, which influence the success or failure of a
company’s offer. Characteristics of the people who adopt new products also have a strong
impact on the company.

The decision to adopt an innovation may be made by an individual, a household, or

those responsible for an organization’s purchases.

Individual consumers decide whether to purchase a new kind of watch; household

members usually discuss before buying a television. Managers decide which kind of office
automation system a firm should adopt. In every case, adoption is in the decision-makers’
hands, not the marketers’ hands.

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Moreover, consumers and organizational buyers pass through various mental and
behavioral stages before deciding to adopt an innovation. Consumers move from no
awareness to awareness, to interest, to evaluation, to trial, and finally to adoption.

Product concept and its relevance to perceived needs

No matter how well costs are driven or held down, no product can be profitable
unless it sells. Therefore all products must satisfy customer needs and wants. As all
customers are different and seek different benefits from products, businesses would ideally
tailor their products to satisfy each customer's wants and needs. However, for many
businesses this is not achievable, so they need a way of classifying products in a structure
aligned to customer segments, as defined by their needs and wants. The more flexibility a
business has to configure products to different customer segments at minimal cost, the
more segments they can target with the core product. Which is why it is vital to develop new
products with flexibility as a key feature. Philip Kotler, an economist, devised a model that
recognises customers have five levels of need, ranging from functional or core needs to
emotional needs. The model also recognises that products are merely a means to satisfy
customers' varying needs or wants. He distinguished three drivers of how customers attach
value to a product:

 Need: a lack of a basic requirement.

 Want: a specific requirement of products to satisfy a need.
 Demand: a set of wants plus the desire and ability to pay for the product

Customers will choose a product based on their perceived value of it. Satisfaction is
the degree to which the actual use of a product matches the perceived value at the time of
the purchase. A customer is satisfied only if the actual value is the same or exceeds the
perceived value. Kotler attributed five levels to products:

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The five product levels are:

1. Core benefit: The fundamental need or want that consumers satisfy by

consuming the product or service. For example, the need to process digital
images.

2. Generic product: A version of the product containing only those attributes or

characteristics absolutely necessary for it to function. For example, the need to
process digital images could be satisfied by a generic, low-end, personal
computer using free image processing software or a processing laboratory.

3. Expected product: The set of attributes or characteristics that buyers normally

expect and agree to when they purchase a product. For example, the computer
is specified to deliver fast image processing and has a high-resolution, accurate
colour screen.

4. Augmented product: The inclusion of additional features, benefits, attributes

or related services that serve to differentiate the product from its competitors.
For example, the computer comes pre-loaded with a high-end image processing
software for no extra cost or at a deeply discounted, incremental cost.

5. Potential product: This includes all the augmentations and transformations a

product might undergo in the future. To ensure future customer loyalty, a
business must aim to surprise and delight customers in the future by continuing
to augment products. For example, the customer receives ongoing image
processing software upgrades with new and useful features.

Kotler's Five Product Level model provides businesses with a proven method for
structuring their product portfolio to target various customer segments. This enables them
to analyse product and customer profitability (sales and costs) in a structured way. By
organising products according to this model, a business' sales processes can be aligned to
its customer needs and help focus other operational processes around its customers – such
as design and engineering, procurement, production planning, costing and pricing, logistics,
and sales and marketing.

Grouping products into product families that align with customer segments helps
modelling and planning sales, as well as production and new product planning.

Critical Thinking Questions

Activity 1: Self-Assessment Questions

Read the Business Plan you submitted in ECC 13 (Business Plan Preparation) and
answer the following questions:

1. How do your target customers view your products or services?

2. How will they shop for our products/services that you intend to offer in your
Business Plan?

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3. Can you structure your proposed products/services into families that align with
how your target customers value your products/services?

4. How can the product structure be optimised along common components to make
cost and price structures logical and accessible?

When doing this activity, please consider the following:

A. Actions to Take (Dos)

1. Start with customers.

2. Analyse and segment customers by their needs and wants.

3. Align products into families that align to customer segments.

4. Optimise product hierarchies along component and production process
commonalities to help with cost and price structure management.

5. Strategically assess the profitability of products, product families and customer

segments.

6. Report gaps and opportunities identified by the product hierarchy.

B. Actions to Avoid (Don’ts)

1. Don't attempt to shoehorn customer segments into existing products and structures.

2. Avoid too many customer segments, leading to overly complex product and
cost/price structures.

Activity 2: Case Study

Read the case, “Design Thinking and Innovation at IDEO” from

https://www.icmrindia.org/casestudies/catalogue/Marketing/MKTG252.htm and
answer the following:

1. How will you foster innovation in your proposed business/entrepreneurial

activity?

2. Examine the your proposed organization structure as presented in your

Business Plan. Will the structure work for your proposed business entity to
be a creative organization?

3. How will the framework for designing innovative solutions used at IDEO be
applied in your proposed business?

4. Analyze the scope of work for design consultancy firms and compare it with
your proposed business.

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