New product development (NPD) is inherently risky but is also a necessary function of any firm that sustains long-term business success. CEOs are demanding more innovation and Wall Street echoes the cry. NPD teams are adopting systems and approaches to create repetitive processes and gain customer insights. Yet, commercialization of new products remains somewhat lackluster.
In this post, we discuss three factors in new product development that are often missing in the quest for innovation success. Commercialization of a new idea, concept, or technology cannot be successful without addressing these three arenas. And to be effective at repeated innovation success, companies must thoughtfully consider each factor before deciding to commercialize a new product.
The first important factor for sustainable innovation is the industry. This includes addressing questions of where the company is positioned in the industry – a core product, a distributor, or a reseller. What sort of R&D capabilities does the firm have? Are new technologies developed in-house, outsourced, or licensed-in?
These questions focus on how a firm participates under current market conditions. If a company is positioned in a slow-moving industry, it needs to evaluate the impacts of new technologies on its existing business models. New entrants to the market can disrupt supply and distribution chains as well as allow consumers to find new solutions outside of existing product categories.
For example, a few years ago, ExxonMobil jumped on a new technology, offering “SpeedPass”. The small device hung from your key chain and by waving it at the gas pump, your ExxonMobil credit card was charged for the fill-up. The idea was to ease the transaction and give some time back to customers. The SpeedPass innovation certainly grasped the concepts of new technology but was far outside the typical markets and industry specializations of the oil giant. ExxonMobil’s core competency is in finding oil, extracting, and refining it. The SpeedPass was abandoned in early 2018.
As indicated by the demise of the SpeedPass, the innovation itself plays a huge role in successful commercialization. Companies need to consider the product life cycle. Balancing the investment in manufacturing with a product expected to have a long-life cycle with many derivatives is a good bet. A firm should evaluate tolling or other manufacturing arrangements if the product is expected to fill a niche among a small group of consumers for a shorter time.
In addition, some radical innovations and breakthrough technologies require extensive spending to educate a new market. Some years ago, one of my clients had designed a terrific new home insulation product to increase the R-value in a home. The product did not see sales take off until the firm invested in educating home remodeling contractors. Radical innovations may be obvious to the NPD team, but need an explanation for general market use.
Innovation in inherently risky but failing to move forward is a guarantee to disappear. Commercialization of a new product requires balancing risks with market opportunities.
Of course, there is always a financial risk of product failure. That’s why understanding the industry and the innovation itself are important upfront in any NPD project. Other risks include technical and quality outcomes. The product must function technically as advertised and be intuitive for customers to use. If not, repeat purchase will never materialize. A product also must be reliable and meet a customer’s expectations. Quality is always defined as customer satisfaction.
Three Factors of NPD
Customers, especially loyal consumers who make repeat purchases and spread good word-of-mouth about your products are at the heart of successful commercialization of any new product. A company can minimize the odds of a failed product launch by paying attention to three key factors in NPD.
First, understanding your industry and the pace of change drives successful innovation. Competitors may jump on a technological band wagon but if that technology is far removed from your core competencies, is it a good investment? Consider the supply and distribution chains, geographical dispersion, and manufacturing costs as part of any industry assessment.
Next, a company must be intimately familiar with the innovation itself for successful commercialization. Incremental innovations and product derivatives are easily marketed to existing customers. Growing market share or increasing market penetration may require educating new users, especially if the technology or application is new-to-the-world.
Finally, no commercialization of a new product is successful without considering the potential risks. What if the product fails? What if consumers are not satisfied with technical features or product reliability? A firm must decide whether to re-invest in the product or to pull the plug. And these decisions build off the upfront, strategic industry and innovation assessments.
To learn more about new product development management, check out self-study and other NPDP Workshops. Feel free to contact me at firstname.lastname@example.org or 281-280-8717. At Simple-PDH.com where we want to help you gain and maintain your professional certifications. You can study, learn, and earn – it’s simple!
One of my favorite new books on innovation is The Power of Little Ideas by David C. Robertson and Kent Lineback. Of course, anyone interested supporting a repetitive NPD process should read Bob Cooper’s Winning at New Products and New Product Forecasting by Ken Kahn. Other good books that should be on the shelf of any innovator are The Innovator’s Solution and Crossing the Chasm (affiliate links). I also dedicate an entire chapter to NPD processes in NPDP Certification Prep: A 24-Hour Study Guide, and you can find additional references at https://globalnpsolutions.com/services/npd-resources/.
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