With the aftermath of globalization, companies are carefully thinking about the best ways to extend their product and service offering. Thus, product development strategy is critical for their success. Yet, many companies are in defensive mode and merely want to maintain the position in the market place.
However, staying in a holding position is a definite way for companies to be left behind. Innovative thinking that allows for product/service growth is a too sure way for sustainable success. In today’s discussion, we will explore the importance of product development for the growth of businesses, especially in a competitive market.
Launching into new product offerings is not easy. According to one market research, approximately 75% of consumer-packaged goods and retail products fail to earn even $7.5 million during their first year.[1] Harvard Business School Professor, Clayton Christensen, who is the world’s foremost authority on disruptive innovation, suggests that the failure rate of new products may actually be as high as 95%. Product failure rates relate to the number of products that are launched commercially but fail.
Geoffrey A. Moore, the author of Crossing the Chasm, maintains the challenges of product deployment: “… the less successful product is often arguably superior. No content to slink off the stage without some revenge, this sullen and resentful crew casts about among themselves to find a scapegoat, and whom do they light upon? With unfailing consistency and unerring accuracy, all fingers point to—the vice president of marketing. It is marketing’s fault!” Thus, new product development is a risky proposition to senior executives making these critical positions as well as the organization as a whole.
Businesses that want sustainable growth must develop new product and services often and consistently. Philip Kotler and Kevin Keller, authors of Marketing Management, “In an economy of rapid change, continuous innovation is a necessity. Highly innovative firms are able to identify and quickly seize new market opportunities. They create a positive attitude toward innovation and risk taking, routinize the innovation process, practice teamwork, and allow their people to experiment and even fail.”
In taking any actions on new product development, businesses should think strategically about their product development. Alexander Chernev, the author of Strategic Marketing Management, further argues that managing growth is the most preferred route to profitability compared to just cutting cost.
He outlines four key issues in managing growth, which include: (a) gaining and defending a market position, (b) managing sales growth, (c) new product development, and (d) product-line management. Chernev maintains, “New products and services are the keys to sustainable growth; they enable companies to gain and sustain their market position by taking advantage of the changes in the market to create superior customer value.”
With that said, new product development meaning having the ability to take a product or service idea and convert it into a tangible offering that customers want. The following are the steps that more products undergo for market consumption: (a) idea generation, (b) concept development, (c) business analysis, (d) product development, (e) market testing, and (f) business deployment.
The Ansoff Matrix is a strategic tool for product development, consisting of market penetration, market development, product development, and diversification.[2] In market penetration strategy, organizations seek to grow using its existing product offerings in existing markets. With this strategy in mind, organizations try to increase market share. In a market development strategy, companies try to expand into new markets like new buyers using their existing offerings. In product development strategy, businesses seek to create new products and services targeted at its existing buyers.
In a diversification strategy, an organization tries to grow its market share by introducing new product offerings while at the same time entering a new market. Diversification is the most-risky approach due to simultaneous making new changes (new product, new market). Kotler and Keller further maintain the difficulty of sustainable product success: “It is increasingly difficult to identify blockbuster products that will transform a market, but continuous innovation can force competitors to play catch-up.” The concept sounds easy. However, it is riddled with problems.
Without a doubt, many companies know that product development is a risky business. Although many consumers will proudly proclaim the success of many innovative products like Apple and Google, these same buyers are not aware of the numerous product launch failures in this country. In our discussion, I demonstrated the importance of product development for the growth of businesses, especially in a competitive market. Failures often lead to innovation.
American great inventor, Thomas Edison, had his own share of failures, but learned how to innovate because of them: “I have not failed. I’ve just found 10,000 ways that won’t work.” Likewise, today’s businesses can also achieve success if they understand how to deploy their products and services to the marketplace strategically. Although there is enormous danger in failure, there is also the opportunity of unforeseen growth. Don’t wait until it’s too late.
Please share your opinion about new product development from your perspective.
© 2017 by Daryl D. Green
[1] “Why Most Product Launches Fail” by Joan Schneider and Julie Hall
[2] Ansoff Matrix by Quick MBA
July 14, 2017 at 2:28 pm
I agree with your statement regarding companies succeeding in producing new products, but alienating loyal customer base. There is a brand of shirt sold at target, and, every single season, Target rebrands the product. While I am glad that there are new shirts and styles available every year, I am always angry because the original product I enjoyed is altered during rebranding, so much so that the same basic shirt is unrecognizable and fits completely differently. Target would make more money from me (and several people I know who agree with me), if they would continue experimenting in style, but retain the older styles which they try to re-invent every season. If companies cared more about producing a lasting product, they would have customers more able to trust them, instead of customers hyper-aware of the company’s simple desire to push a product that may be purchased, but not enjoyed and remembered by potentially loyal customers.
July 14, 2017 at 10:17 pm
Hi Tyler,
Thanks for your personal story about Target! You provide an interesting point. Target is attempting to innovate by offering different offerings seasonly. However, the company has loyal customers who do not want any changes.
All,
How does a company balance these competing customers’ needs?
Is it even possible to do so?
Dr. D. Green
July 26, 2017 at 1:24 am
In regards to service industries, one of the ways that they can expand their product line by offering service that appeal to a market or demographic outside of the one they usually cater to. For instance, Holiday Inn is an economic hotel chain that caters to individuals trying to travel on a budget. They could try to broaden their horizons by trying to create upscale rooms or buildings that would appeal to higher dollar clients. They could also try targeting longer staying guests by creating extended-stay sections where individuals could find a greater level of living amenities for a weekly or monthly price. Both of these approaches would carry a substantial amount of investment and risk, but could become lucrative if they worked out. WC 124
July 13, 2017 at 10:54 am
Hello Sharlita, Thanks for your insightful observations!
You stated: “In a society where results is king second only to the almighty dollar, the value of employee growth is often left in the dust.”
Interestingly, companies are often too blind to see beyond their own balance sheets. Value does matter, internally (i.e. employees) and externally (i.e. customers). Chernev (2014) maintained that businesses, when developing its product offerings, should seek to create value for three key market players: its targeted customers, its own company, and its collaborators. Ignoring these critical market partners can be fatal.
All,
How do organizations seek to create value for all of their key stakeholders when creating new products?
Dr. Green
Chernev, A. (2014). Strategic marketing management. USA: Cerebellum Press.
July 14, 2017 at 2:18 pm
When creating a new product, a company is expanding its reach. Many times, new ideas can come from within the company, so allowing feedback from employees (and offering them credit where it is due) is a great way to encourage people within the company to seek its betterment. Susan Adams (2012) writes on the importance of promoting from within the company rather than externally, citing that “not only do external hires get paid more, but for their first two years on the job, they receive significantly lower marks in performance reviews.” Furthermore, on that note, if a company invests enough thought and time into the new product, it can bring in new customers (and money), while offering diversified items and services to loyal customers. Collaborators benefit by opening new deals and partnerships in regards to the industries and elements manufacturing the product. This causes me to think of a candy company, wherein several employees think of a version of the popular candy bar with extra peanuts. They are offered a bonus for their ingenuity, while the customers (old and new) receive a new type of candy, and the manufacturing plant makes new deals with peanut farmers. WC 196
Adams, S. (2012). Why Promoting From Within Usually Beats Hiring From Outside. USA: Forbes Magazine
July 15, 2017 at 12:18 pm
Hello Dr. Green,
This is a very interesting question to ask. I would picture the idea is to align the interests of management with those of stakeholders. An article in the Harvard Business Review actually discusses 10 ways to create this “value.”[1] The most important ways to create this value in my opinion is for a company or firm to not manage earnings or provide earnings guidance and to make strategic decisions that maximize expected value, even at the expense of lowering near-term earnings. If an organization is focused more on the quality of their product, rather than the monetary side of how much profit they will be able to make, then the organization will provide a product of better value to the consumer.
Creating value is probably one of the hardest parts of creating new products because everyone has a different idea or opinion on what product they are seeking, so finding a balance for all stakeholders can be very tricky. [WC-162]
[1] “Ten Ways to Create Shareholder Value” by Alfred Rappaport
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I think you hit the nail on the head when you say, “Failures often lead to innovation.” In a society where results is king second only to the almighty dollar, the value of employee growth is often left in the dust. Companies that prioritize their employees experiencing risk benefit not only the person’s individual growth but the innovation of the company as a whole. Maya Angelou agrees with Thomas Edison, failure is only the step stool to success. In terms of product development, I find companies struggle with how to shift marketing while not alienating a loyal fan-base. Ford, McDonalds, and Shea Moisture are all examples. It is interesting to consider how this advice might apply to service-oriented industries such as hotel chains. How would one grow that product? Thank you for sharing insight on how companies can successfully expand their brand. With percentages such as high as “95% failure rate for new launched products,” we can all use all the help we can get.
I think you hit the nail on the head when you say, “Failures often lead to innovation.” In a society where results is king second only to the almighty dollar, the value of employee growth is often left in the dust. Companies that prioritize employees’ experience with risk and failure benefit not only that person’s individual growth but the innovation of the company as a whole. Maya Angelou agrees with Thomas Edison, failure is only the step stool to success. In terms of product development, I find companies struggle with how to shift marketing while not alienating a loyal fan-base. Ford, McDonalds, and Shea Moisture are all examples. It is interesting to consider how this advice might apply to service-oriented industries such as hotel chains. How would one grow that product? Thank you for sharing insight on how companies can successfully expand their brand. With the added knowledge that “the failure rate of new products may actually be as high as 95%” it’s evident we all can use all the help we can get.