New Product

Developing New Products

By its nature marketing requires new ideas. Unlike some organizational functions, where basic processes follow a fairly consistent routine (e.g., accounting), successful marketers are constantly making adjustments to their marketing efforts. New ideas are essential for responding to changing demand by the target market and by pressure exerted by competitors. These changes are manifested in decisions in all marketing areas including the development of new products.

In addition to being responsive to changing customer tastes and competitive forces, there are many other reasons why new product development is vital. These include:

·         Many new products earn higher profits than older products. This is often the case for products considered innovative or unique which, for a period of time, may enjoy success and initially face little or no competition.

·         New products can help reposition the company in customer’s minds. For instance, a company that traditionally sold low priced products with few features may shift customers’ perceptions about the company by introducing products with more features and slightly higher pricing.

·         Fierce global competition and technological developments make it much easier for competitors to learn about products and replicate them. To stay ahead of competitors marketers must innovate and often create and introduce new products on a consistent schedule.

·         Companies with limited depth in a product line may miss out on more sales unless they can add new products to fill out the line.

·         Some firms market seasonal products that garner their highest sales during a certain time of the year or sell cyclical products whose sales fluctuate depending on economic or market factors. Expanding the firm’s product mix into new areas may help offset these fluctuations. For manufacturing firms an additional benefit is realized as new products utilize existing production capacity that is under-used when seasonal or cyclical products are not being produced.

Categories of New Products

New products can fall into one of several categories. These categories are defined by the type of market the product is entering (i.e., newly created, existing but not previously targeted, existing and targeted ) and the level of product innovation (i.e., radically new, new, upgrade).

·         Creates New Market with Radically New Product or Product Line – This category is represented by new breakthrough products that are so revolutionary they create an entirely new market. Recent examples include digital music players, such as Apple’s iPod, that have spawned new delivery methods (downloadable music) and new media (podcasting). Highly innovative products are rare so very few new products fall into this category.

·         Enters Existing But Not Previously Targeted Market with New-Product or Product Line – In this category a marketer introduces a new product item or product line to an existing market which they did not previously target. Often these products are similar to competitors’ products already available in the market but with some level of difference (e.g., different features, lower price, etc.). Microsoft’s entry into the video gaming system market with their Xbox is an example.

·         Stays in Existing and Previously Targeted Market by Enhancing Existing Product or Product Line – Under this development category the marketer attempts to improve its current position in the market by either improving or upgrading existing products or by extending a product line by adding new products. This type of new product is seen in our earlier example of Procter and Gamble’s Tide product line which contains many product variations of the basic Tide product.

How New Products Are Obtained

Marketers have several options for obtaining new products. First, products can be developed within an organization’s own research operations. For some companies, such as service firms, this may simply mean the marketer designs new service options to sell to target markets. For instance, a marketer for a mortgage company may design new mortgage packages that offer borrowers different rates or payment options. At the other extreme companies may support an extensive research and development effort where engineers, scientists or others are engaged in new product discovery.

A second way to obtain products is to acquire them from external sources. This can occur in several ways including:

·         Purchase the Product - With this option a marketer purchases the product outright from another firm that currently owns the product. The advantage is that the product is already developed, which reduces the purchasing company’s time and cost of trying to develop it themselves. On the negative side the purchase cost may be high.

·         License the Product – Under this option the marketer negotiates with the owner of the product for the rights to market the product. This may be a particularly attractive option for companies who have to fill a product need quickly (e.g., give a product line more depth) or it may be used as a temporary source of products while the marketer’s company is developing its own product. On the negative side the arrangement may have a limited time frame at which point the licensor may decide to end the relationship leaving the marketer without a source for the product.

·         Purchase Another Firm - Instead of purchasing another company’s products marketers may find it easier to just purchase the whole company selling the products. One key advantage to this is that the acquisition often includes the people and resources that developed the product which may be a key consideration if the acquiring company wants to continue to develop the acquired products.