- One way to stay ahead of the competition is by developing new products and innovating existing ones
- The process of new product development involves a number of important stages
Diagram: The Process of new Product Development
New product development is a lengthy process that typically involves generating ideas, developing prototypes and test launches prior to the full launch
- Generate ideas
- New product concepts are discussed and brainstormed using customer suggestions, ideas from competitors’ products, employees’ ideas and information collected through market and technical research
- Select the best idea
- Ideas are weighed up with some dropped and others chosen for further research
- This decision relates closely to costs and likely demand
- Research includes looking into forecast sales, size of market share, and cost-benefit analysis for each product idea
- Develop a prototype
- This allows the operations department to see how the product can be manufactured, any problems or difficulties arising from its production and how to fix them
- Computer simulations are often used to produce 3D prototypes on screen
- Test launch
- The developed product is sold to on a small scale to a limited market to see how well it sells before its full launch
- Changes may be needed prior to an expensive, large scale launch
- Digital products like apps and software run beta versions, which is a method of test-launching
- Full launch of the product
- The finalised version of the product is launched to the entire target market
Costs and Benefits of New Product Development
Costs
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Benefits |
- Market research collection and analysis regarding the new product is time-consuming
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- Sell more products/services to existing customers
- Making the most of existing relationships is cheaper than finding new customers
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- Investment in Research and Development and design can be very expensive
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- Developing new products spreads fixed costs like premises or salaries across a wider range of products
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- The costs of producing trial products, including the costs of wasted materials, can be significant especially if innovative materials/components are used
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- Diversifying the products it offers means a business is less reliant on certain customers or markets
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- Low sales if the target market is wrong or if market or technical research leads to the development of an inappropriate product or service for the market
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- Can create a unique selling point by developing a new innovative product for the first time in the market
- This USP can be used to charge a high price for the product as well as be used in advertising
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- Damage to the brand if the new product fails to meet customer needs
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- Charge higher prices for new products
- Pricing strategies such as price skimming can be used for innovative new products
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