New Product Development
Successful New Products
Strong Relative Advantage: The product must offer a clear and significant advantage over existing alternatives. This could be in terms of performance, features, reliability, or design.
Better Understanding of Customer Needs: Successful products are built on a deep understanding of what customers truly want and need. This involves thorough market research, customer feedback, and iterative development.
Beat the Competition to Market: Being first to market can create a significant advantage, allowing a company to establish brand recognition and capture market share before competitors enter the space.
Higher Performance-to-Cost Ratios: Products that offer superior performance at a competitive cost are more likely to succeed. This involves optimizing both the product's capabilities and its price point.
Higher Contribution Margins: Products with higher contribution margins contribute more to a company's profitability, making them more sustainable and attractive to investors.
Larger Budgets: Adequate funding is crucial for new product development, marketing, and launch. Sufficient resources allow for thorough testing, effective promotion, and efficient distribution.
Stronger Top Management Support: When top management is fully committed to a new product, it is more likely to receive the resources and attention needed to succeed.
Importance to Long-Term Success
Strong Correlation: There is a direct link between the success of new products and a company's overall financial health. Companies that consistently launch successful new products tend to be more profitable and experience higher sales growth.
Industry Leaders: Leading companies in various industries rely heavily on recent product innovations. These companies often generate a significant portion of their revenue from products developed within the past five years.
Least Successful Companies: Companies that struggle to innovate and launch successful new products often lag behind in terms of revenue growth and profitability. These companies tend to rely on older products and may struggle to compete with more innovative rivals.
Innovation Continuum
The innovation continuum categorizes new products based on the amount of behavioral change they require from consumers:
Continuous Innovation: Requires minimal behavioral change. These are typically incremental improvements or new versions of existing products. Examples include:
Bluetooth-enabled digital music player
40GB digital music player
PC with flat screen monitor
PC with wireless mouse
PC with DVD burner
Cell phone with voice recognition
Cell phone with digital camera
Cell phone with global positioning system
Dynamically Continuous Innovation: Requires moderate behavioral change. These products introduce new features or functionalities that may alter consumer behavior to some extent. Examples include:
Stereo
Tape player
CD player
Digital music player
Personal computer
Notebook computer
Palm computer
Corded phone
Cordless phone
Cell phone
Video phone
Discontinuous Innovation: Requires significant behavioral change. These are breakthrough products that create entirely new markets and disrupt existing consumption patterns. Examples include:
Phonograph
Computer
Telephone
New Product Development Process
The new product development process generally follows these stages:
Idea Generation: The process of generating new product ideas through brainstorming, market research, customer feedback, and other sources.
Idea Screening: Evaluating and filtering the generated ideas to identify the most promising ones for further development.
Concept Development: Developing detailed product concepts, including features, benefits, and target market.
Business Analysis: Assessing the potential financial viability of the product, including costs, revenues, and profitability.
Market Testing: Testing the product and marketing program in a limited market to gather feedback and refine the approach.
Commercialization: Launching the product into the full target market.
Market Testing
Test Marketing: A controlled experiment where a new product and its marketing program are introduced in a limited geographic area to gauge consumer response and refine the marketing strategy.
New Product Failure
High Failure Rates: New product failure is a common phenomenon, with a significant percentage of new products failing to achieve commercial success. Examples include:
95% of new U.S. consumer products fail.
90% of new European consumer products fail.
Reasons for Failure: Several factors can contribute to new product failure, including:
Ignoring unfavorable market research
Overestimating market size
Marketing mix decision errors
Stronger than anticipated competitive actions
Why New Products Fail
No Discernible Benefits: The product doesn't offer any clear advantages or unique selling points compared to existing alternatives.
Poor Match Between Features and Customer Desires: The product's features don't align with what customers actually want or need.
Overestimation of Market Size: The company overestimated the potential demand for the product, leading to overproduction and unsold inventory.
Incorrect Positioning: The product is positioned in the market in a way that doesn't resonate with the target audience.
Price Too High or Too Low: The product's price is either too expensive for the perceived value or too cheap to cover costs and generate profit.
Inadequate Distribution: The product is not available in the right places at the right time, making it difficult for customers to purchase.