Business Excellence Consortium
Business Development
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We must also be aware of the fact that companies must grow through new product and business development. To survive and flourish in the long run, the core technology must be grown in the organization. Technology is growing at an ever-increasing rate and must be integrated into product development; otherwise the market niche of today will be obsolete and displaced by companies with newer technology. The list of technologically displaced products is growing at an increasing rate. Remember the slide rule, or the mimeograph machine? How about mechanical cash registers and nixie tube readouts? There are also transitions taking place every day: 8 mm and super 8 mm transition to digital video cameras, reel-to-reel tape recorders to cassettes to DVD to IPOD, or station-wagons to minivans to hybrid SUV's.
Organizations with strong Product and Business Development programs have measurable characteristics.
Innovative Leadership Approach
- Both an internal and external focus
- New product as a performance measure
Customer and Market Focus
- Application of advanced technology
Team Based Organizational Approach
- An integrated team approach through the entire organization
Historical Perspectives
- Time to market
- Volume of new products released per year
Types of New Product Development and their Contribution
There are a variety of different types of new product developments in existence today. Each is used for a different reason and each has its own objectives and dynamics for execution. The following is a common list of the different types and their attributes and contributions.
New-to-the world type products
These are somewhat revolutionary to the marketplace in that the marketplace never had exposure to the product directly, perhaps only as a concept or prediction from a futurist. They generally create entire new markets never before existing. An example would be the cellular telephone. Only predicted vaguely by the Dick Tracy cartoon strip and personified as a "communicator" in the Star Trek series, the cellular telephone has revolutionized person to person communications in modern day society.
These product development programs generate entire new markets that were not previously there. They enable true growth in the economy by generating revenue to the enterprise. They also have a multiplication effect in the economy by generating requirements for parts and subassemblies that need to be developed and supplied by the vendors. In many cases they generate new channels of sales and new routes to market.
New product lines
These categories of products allow entry into newer markets not previously participated in by the manufacturer. By adding the categories, the manufacturer must be careful to protect the positioning of the existing products, which generate the existing business. Failure to do so will place them in danger of converting loyal customers away from one already successful product to a new one with no net gain in market share. Perhaps a good example of this type of product would be the GM Saturn. Here a large manufacturer with many products lines generated an entire new category of car to serve a more discerning customer base. Careful not to jeopardize their existing base, this "new car company" launched its product in a new style dealership with new business practices and also allowed GM to "test drive" innovative marketing programs.
The new product lines generated incremental revenue to the manufacturer by leveraging the markets familiarity with the manufacturer into new categories of products. In many cases, the market's familiarity with the manufacturer paves the way for new categories of products. Sometimes, these products go into new markets, but can also be an alternative to existing ones.
Additions to existing product lines
These efforts support existing product lines by creating line completers to extend the influence of the original products' brand to larger audiences or extending range, power, and scope. All are done in the attempt to secure more of a market. An example of this type of product would be the M&M candy extending their product line to M&M almond and seasonal M&M for Christmas and Easter.
The addition to existing lines has a similar effect to the company's revenue as the new product lines. They generate incremental revenue by leveraging the existing product familiarity rather than the company familiarity. These programs generate incremental improvement in the economy, but generally fall short of the contribution made by the totally new products.
Improvements and revisions of existing products
As time marches on, customers have higher expectations of your product, and competition adds features to their offering. It becomes necessary to improve the company's offering to increase or retain market share. By redesigning the product or repackaging it, the company can offer a greater value or satisfaction to the customer. It is possible to temporarily affect this by enhancing perceived value; however, an ever more informed customer base will respond to actual value increased in the long run. An example of this type of product development is the automotive companies adding features to the base model each year as standard equipment.
Generally, the improvements to existing products do not generate additional revenue to speak of. They are simply a means to retain the market share or to slightly improve it. They are defensive in nature and in many cases are stopgap measures until a new product program can be prosecuted. These programs do little to generate a vitalized economy in the long run but can provide time and revenue to prosecute the development of the replacement.Repositioning
Another means of increasing or maintaining market share is through repositioning. A repositioning is an exercise in changing the perception in the mind of the consumer. It generally can happen with products that are lower in value (dollar amount) or the customer spends little time evaluating the actual data. For high dollar decisions, the customer will generally take the time to evaluate the facts and make their own decision. Repositioning is truly a marketing activity, rather than a development activity. An example of this is the changing of advertising by focusing the audience on a possible linkage drawn between certain brands of cereal and a high fiber, lower cancer risk diet.
Repositioning is another stopgap measure for generating revenue from an existing product. It does not generate overall growth in the economy per se, it is similar to the improvement or the revision, except that it doesn't even require a product change necessarily, simply repositioning the product in the mind of the customer.
Cost reductions
These programs are strictly a means for reducing the cost of products to offer similar value. It generally is the result of a competitive initiative either internally generated or from external forces. In many cases, it is simply a means to generate more volume to generate less incremental profit but perhaps more overall profit. Whatever the motive, a cost reduction is generally meant to increase unit volume through the channel. This becomes easier with capital equipment costs and development costs absorbed, and the manufacturer wants to capitalize on the sales channel.
Cost reductions are helpful to the organization by generating additional margin off of the existing product. This margin can absorb development costs, and manufacturing set up costs. In many cases it provides a period of time to continue the product, generated the revenue and allow the organization to position itself with the new product. It does not however generate any real growth in the economy.
This introduction, with modification and permission from the author, has been taken from the book New Product Development From Initial Idea to Product Management by Marc A. Annacchino published by Elsevier copyright ©2003.