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]

Advantages and disadvantages[edit]

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 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).

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.[8]

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.[9] 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.[10]

Existing product development[edit]

Existing product development is a 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.

Vs. other forms of innovation[edit]

While the difference between different forms of innovation seems intuitively clear, it is not always obvious what kind of innovation is occurring in practice. While there are different dimensions to consider whether it is a product innovation rather than e.g. a technology or business model innovation, it is not always possible to clearly differentiate one from the other. For example, compared to a business model innovation, a product innovation often has:

  • Lower strategic importance
  • Lower risk, impact, and uncertainty
  • Lower complexity
  • More clarity about who is in charge
  • Fewer actors and stakeholders
  • Fewer different disciplines involved
  • Smaller set of skills and capabilities necessary[11]



  1. ^ Policy Studies Institute, University of Westminster. "Small Firms' Innovation" (PDF). 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" (PDF). International Journal of Innovation and Business Strategy. 02 (August 2013): 19. Retrieved 30 October 2014. 
  8. ^ a b Hoang, Paul (2010). Business & management. [Melton, Vic.]: IBID Press. p. 688. ISBN 978-1876659639. 
  9. ^ "Product Life Cycle Stages". Product Life Cycle Stages. Retrieved 30 October 2014. 
  10. ^ Drucker, Peter (2012). Innovation and Entrepreneurship. Routledge. p. 229. ISBN 1136017615. 
  11. ^ "Product, service, and business model innovation: A discussion (PDF Download Available)". ResearchGate. Retrieved 2017-10-23.