What is Product Development?
Product development, also referred to as new product development, is a process of generating ideas for the creation of a new product or service to be sold by a business or company to its customers. Generally, motivation to develop a new product comes from the availability of a new opportunity in the market or advent of a new technology.
Thus, newly developed products are either called market-pull products or technology-push products. Moreover, defining the target market for a product or service must occur earlier in the product development process as each product is not meant for every customer or segment.
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Types of Products
A product has physical existence and is able to generate value in monetary terms. In today’s competitive market, organisations are striving to gain a high market share. For this, organisations try to develop new products. New products development is broadly grouped into two categories, which are:
In innovation, existing products are modified as per the emerging needs of customers. For example, earlier, diapers were introduced for babies and now adult diapers have also been introduced. Motivation for product innovation comes from a new market opportunity, a new technology, need for cost-cutting and so on.
Many businesses strive to work on inventions and introduce something new. For this, they invest lots of amount of money on R&D activities. For example, introduction of telephone to speak to a person in a remote area.
Product Life Cycle
Every product has limited life span. The Product Life Cycle (PLC) makes it possible for an organisation to analyse how the product behaves from the stage of development to the selling stage in the market by considering its launch, production, growth and sales maturity. There are many factors that affect PLC. Some of them are commercial costs, sales measures, technology, specifications, quality, new entrants, etc.
When a new product enters the market, the sale of the product is initially low until consumers become aware of the product and its advantages. During the introduction stage, the organisation is likely to gain additional costs linked with advertising and the initial distribution of the product.
The higher costs tied with a low sales level makes the introduction stage a period of negative profits. The main goal initially is to set up a market and develop a primary requirement for the product class.
At this stage, consumers are made aware of the product, sale increases and more market segments are targeted. The advertising becomes more aggressive and the product floods the market. There are chances of competition, which can result in a price war. At the growth stage, it is important to acquire customer preferences and increase sales.
The maturity stage is important since sales increase gradually at a slower rate into this stage. If the brand value is strong, the promotional cost can be reduced. Competition can lead to market share or price decline. The products of other competing companies may be alike at this point which will increase the complexity of the product. Organisations attempt to convert non-users into consumers.
Sales advertisements may be offered to support retailers to provide the product more shelf space over competing products. During this stage, the main goal is to sustain market share and enlarge the product life cycle.
Over time the sales of the product start to reduce as the market becomes saturated and the product becomes outdated. If the product has gained brand reliability, the profitability may be sustained longer. Unit costs might go high with reduction in production volumes and hence no more profit can be made.
During the decline phase, the organisation has three options:
- To make such a product which will attract competition and reduce the price and find new uses for the product.
- To keep it in the market and carry on until no more revenue can be made.
- To discontinue the product when no more revenue can be made.
Let us understand the PLC with the help of examples.
‘Typewriter’ is a classic example of the product life cycle. Typewriters emerged as a technology in the late 19th century and grew in popularity by improving the ease and efficiency of writing. However, the demand and revenues of typewriters soon dropped off with the advent of new electronic technologies like computers, laptops and even smart phones.
Similarly, Video Cassette Recorders (VCRs) reached to no sales with the introduction of cable television networks and satellite TV broadcasting. Product planning refers to a process of creating a product idea and following it until the product is introduced to the market. It is done by taking into consideration various product-related requirements such as features, price, promotion, distribution and so on. Product planning lays foundation for various crucial decisions such as pricing, promotion and distribution.
The following points explain the importance of product planning:
- Planning helps an organisation to focus on customer needs and develop products accordingly.
- Planning ensures optimum inventory levels by preventing overstocking and understocking situations.
- Product planning involves the formulation of strategies focused towards the efficient use of raw materials or input resources.
Product Development Process
The New Product Development Framework is a standard approach that most businesses use for developing new products. There are distinct variations to this framework. Moreover, some organisations are using a five-step procedure whereas most others break it into eight stages.
The most regular approach classifies the process into five steps, which are explained as follows:
It involves brainstorming, wherein a number of innovative ideas are generated for various product aspects (such as requirements of niche market, maximum competitive advantage, effective product mix and so on).
It involves checking the feasibility of ideas and checking whether they match organisational objectives, resources and abilities. At this stage, a number of questions related to advantages and disadvantages of products and price are answered.
At this stage, each product idea is assessed to determine its potential contribution to the sales, costs and profits of the organisation.
It refers to developing samples of the product and then sharing them with the critical stakeholders.
It includes documenting the costs required for bringing the finished product to markets. It includes all the manufacturing items, setup costs, materials, storage, taxes, shipping, etc.
Let us understand the product development process with the help of an example.
A company comes up with an idea to create an electric car. This car will add value to customers by saving money on fuel and protect the environment. In order to pass that idea through concept check, the company will consult the designers and engineers and take their approval whether the idea is feasible. Once the approval is taken, the company develops a specific idea that the car will be targeting medium-income groups and will be reasonably priced.
Thereafter, the company goes on to test concept appeal and finds that the idea is highly appreciated by people as they are looking for an alternative to oil-powered cars both for cost and environment friendliness. Now, the company will create a business objective and ensure that the new product will be financially attractive.
Before finalising the design, the company will create and test various prototypes. The company will now first check the product’s viability and test its marketing plan with alpha and beta testing before pulling the trigger and entering the market. Now, it’s time to introduce the new electric car to the market for the final stage.