Product innovation

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Product innovation is the creation and subsequent introduction of a good or service that is either new, or an improved version of previous goods or services. This is broader than the normally accepted definition of innovation that includes the invention of new products which, in this context, are still considered innovative.


Product innovation is defined as:

the development of new products, changes in design of established products, or use of new materials or components in the manufacture of established products[1]

Numerous examples of product innovation include introducing new products, enhanced quality and improving its overall performance. Product innovation, alongside cost-cutting innovation and process innovation, are three different classifications of innovation which aim to develop a company's production methods.[2]

Thus product innovation can be divided into two categories of innovation: radical innovation which aims at developing a new product, and incremental innovation which aims at improving existing products.[3]

New products and services are the lifeblood of successful businesses – and yet over 80 percent of new products fail.
Even successful launches do not always result in top-line growth.

Advantages and Disadvantages of Product Innovation[edit]

Numerous advantages of product innovation include:

  • Growth, expansion and gaining a competitive advantage: A business that is capable of differentiating their product from other businesses in the same industry to large extent will be able to reap vast amount of profits. This can be applied to how smaller businesses can use product innovation to better differentiate their product from others. Product differentiation can be defined as "A marketing process that showcases the differences between products. Differentiation looks to make a product more attractive by contrasting its unique qualities with other competing products. Successful product differentiation creates a competitive advantage for the seller, as customers view these products as unique or superior." [4] Therefore, small businesses that are able to utilize product innovation effectively will be able to expand and grow into larger businesses, while gaining a competitive advantage over its remaining competitors.[5]
  • Brand switching: Businesses that once again are able to successfully utilize product innovation will thus entice customers from rival brands to buy its product instead as it becomes more attractive to the customer.[6] One example of successful product innovation that have led to brand switching are the introduction of the iPhone to the mobile phone industry (which has caused mobile phone users to switch from Nokia, Motorola, Sony Ericsson,etc to the Apple iPhone).

Numerous disadvantages of product innovation include:

  • Counter Effect of Product Innovation: Not all businesses/ competitors do not always create products/ resources from scratch, but rather substitute different resources to create productive innovation and this could have an opposite effect of what the business/ competitor is trying to do. Thus, some of these businesses/ competitors could be driven out of the industry and will not last long enough to enhance their product during their time in the industry.[7]
  • High Costs and High Risk of Failure: When a business attempts to innovate its product, it will inject lots of capital and time into it, which requires severe experimentation. Constant experimentation could result in failure for the business and will also cause the business to incur significantly higher costs. Furthermore, it could take years for a business to successfully innovate a product, thus resulting in an uncertain return.[8]
  • Disrupting the outside world: For product innovation to occur, the business will have to change the way it runs, and this could lead to the breaking down of relationships between the business and its customers, suppliers and business partners. In addition, changing too much of a business's product could lead to the business gaining a less reputable image due to a loss of credibility and consistency.[9]

New product development[edit]

New product development is the initial step before the Product Life Cycle can be examined, and plays a vital role in the manufacturing process. To prevent loss of profits or liquidation for businesses in the long term, new products have to be created to replace the old products.[10] Peter Drucker suggests in his book 'Innovation and Entrepreneurship' that both product innovation and entrepreneurship are interconnected and must be used together in unison for a business to be successful, and this relates to the process of new product development.[11]

Stages of New Product Development[edit]

These are the few stages that a business has to undergo when introducing a new product line into the market:

1. Market Research: This can be done in the form of primary and primary market research where the business will gather as much information as possible about the present tastes and preferences of its potential consumers, and the gaps filled in the business's particular industry. Secondary market research involves gathering data that has already been collected by another party, and is primarily based on information that has been founded from previous studies. One advantage of secondary market research over primary market research is that it is low-cost, thus enabling the business to be able to invest its time into other more important matters and new potential business ventures. Primary market research involves the business gathering data individually, and this can be done via various sampling methods. Other forms of primary market research include focus groups, interviews, questionnaires, etc. One advantage of primary market research over secondary market research is that it delivers much more specific results than secondary market research, and is only available to the business itself, rather than secondary research which is made globally available, as data has already been collected.[12]

2. Product Development and Testing: This stage involves creating a test product called a prototype. The prototype ensures the business that its product is functioning properly, and all the necessary arrangements are made to enhance the product as much as possible.[13] After the prototype has been devised, the business can now use test marketing where the business introduces a product to a small group of individuals to give the company insight into the effectiveness of the product from the views of their potential customers.[14]

3. Feasibility Study: The business will now look at the legal and financial restrictions of launching the product into the market. This is where the business will create sales forecasts, establish the price of the product, the overall costs of production and profitability estimates. The business also has to consider legal aspects in terms of safety and Intellectual Property Rights (IPR).[15]

After all these stages have been successfully run through, then the business can officially launch the product.

Existing Product Development[edit]

In summary Existing Product Development is a well researched and thought out process of innovation where products/services are redesigned, refurbished, improved, and manufactured which can be at a lower cost. This will provide benefits to both the company and the consumer in different ways; for example, increased revenue (benefits the company) cheaper costs (benefits the company and consumer) or even benefits the environment by implementation of 'Green' production methods. It is overall a beneficial and strategic move to any company when done correctly.[16]

Stages of Existing Product Development[edit]

Existing Product Development is a regular process conducted by various companies. The most well-known and common example is that of Mobile Phones, with regular improvements on existing designs the Smartphone and Mobile Phone industry is one that regularly conducts an EPD program. There are further examples of industries, products or companies that use this method, they are: Software companies, Motor Vehicle Industry, Mobile Phone, Smart Phone and Tablet Industry and the Gaming Industry. The process for EPD(Existing Product Developments) involves different stages each with different internal elements, they are:

1 . Market Research

Research where the consumers’ needs and preferences are gathered and recorded. Market research can be done either through Secondary or Primary market research.

Primary market research is where all required data is gathered individually by the company through various methods.

Secondary market research is where the required data is gathered from previous studies conducted by the external parties; this option tends to be the more low cost method.

2. Product Analysis

Product Analysis is where all re-design, re-branding or re-manufacturing improvements will be considered and a product plan will be developed. Product plans include; an outline of all product changes/enhancements, Product price- manufacturing and retail, Market potential- will be estimated from market research data, Marketing strategy- all advertising mediums and plans and long term plans for the product.

3. Feasibility Study

Operational feasibility - A measure of how well a proposed product solves the problems and how well it satisfies the requirements identified in the market research phase.

Economic feasibility- The purpose is to asses and determines any positive economic benefits that may be presented to the organization through the enhanced product.

Technical feasibility- This study is more directed towards understanding the present technical resources of the company and the expected needs of the product.

Schedule Feasibility- This is where an estimate of how long the product will take to develop and will provide insight into whether deadlines are mandatory or desirable.

4. Product Testing

Product testing is the process in which the products performance, safety, quality and compliances is tested and measure against current established standards. The purpose of product testing is to: determine if specific, regulation or contract requirements have been met, to analyse and define if the product development program is on track, validate suitability for the end use, solve any problems with new changes to the product, help identify potential cost saving in the product/manufacturing process and to define whether changes are relevant to target market.

5. Product testing examples

Subject product to stresses and/or dynamics that are expected to occur in end use, reproduce various damages found to occur in customer use through market research and the control the uniformity of manufacturing the products or components of such product Product testing is the process in which the products performance, safety, quality and compliances is tested and measure against current established standards.


  1. ^ Policy Studies Institute, University of Westminster. "Small Firms' Innovation". Retrieved 27 May 2010. 
  2. ^ Hoang, Paul (2010). Business & management. [Melton, Vic.]: IBID Press. p. 686. ISBN 978-1876659639. 
  3. ^ Wong, S.K.S. (2014), "Impacts of environmental turbulence on entrepreneurial orientation and new product success", European Journal of Innovation Management, Vol. 17 No. 2, pp.229 - 249
  4. ^ "Product Differentiation". Investopedia. Investopedia. Retrieved 30 October 2014. 
  5. ^ "Advantages & Disadvantages of Innovative Technology". Chron. Retrieved 30 October 2014. 
  6. ^ "brand switching". allBusiness. 
  7. ^ Bloodgood, James. "Benefits and Drawbacks of Innovation and Imitation". International Journal of Innovation and Business Strategy 02 (August 2013): 19. Retrieved 30 October 2014. 
  8. ^ Hoang, Paul (2010). Business & management. [Melton, Vic.]: IBID Press. p. 688. ISBN 978-1876659639. 
  9. ^ Hoang, Paul (2010). Business & management. [Melton, Vic.]: IBID Press. p. 688. ISBN 978-1876659639. 
  10. ^ "Product Life Cycle Stages". Product Life Cycle Stages. Retrieved 30 October 2014. 
  11. ^ Drucker, Peter (2012). Innovation and Entrepreneurship. Routledge. p. 229. ISBN 1136017615. 
  12. ^ "The difference between primary and secondary market research". allBusiness. Retrieved 30 October 2014. 
  13. ^ "Creating a Product Prototype". Entrepreneur. 
  14. ^ "What Is Test Marketing? - Definition, Types & Examples". Education Portal. Retrieved 30 October 2014. 
  15. ^ Hoang, Paul (2010). Business & management. [Melton, Vic.]: IBID Press. p. 504. ISBN 9781876659639. 
  16. ^ "Product Development - Breathing new life into old products". Businesses2sell. Retrieved 31 October 2014.