Product Development

Last reviewed: February 2017

Abstract

Product development is a field that covers the design, development, production, marketing, and commercialization of a new or redesigned product or service. It may be implemented across a wide range of fields across a range from mass production to niche market services. To create a successful product, firms must take into consideration many internal factors, such as their available resources and workforce, as well as a wide variety of societal factors, including the market, the economy, technological advances, and the local culture. Product managers rely upon standardized procedures the global market presents many challenges.

Overview

Firms need to create new products in order to grow and remain competitive—some may not need to create or redesign their products very often, but for many, their survival is contingent on the constant generation of products and innovating or improving those which are already stable in the market. Most firms begin with one or two product lines, and develop others eventually based on new ideas generated from inside the business or from market response and consumer need.

While large businesses may develop research and development (R&D) divisions in order to discover or define new ideas for product development, smaller businesses find it difficult to allocate a whole division to these activities. Nevertheless, attentiveness to the market and an organizational culture that fosters innovation are a must for firms large, medium, and small.

Experts posit that market exploration and innovation of available technology are rich sources for new design ideas. There are many strategies used by firms to engage in the generation of ideas and development of new products. Among the most salient techniques are:

• Attribute relationships. This technique requires listing the principal attributes of an existing product in the search for a new, improved product.
• Morphological analysis. This method seeks to identify the structural dimensions of a complex phenomenon and the relationship between them to find a new combination.
• Identification of needs or problems. This technique relies on the consumer to generate ideas. The consumer is asked to identify problems in response to prompts.
• Brainstorming. This method works best with a specific problem and a group of six to ten people, who are asked to contribute many ideas. The object is to stimulate creativity and generate new or better solutions. Spontaneity is encouraged and there is no limit to the number of ideas, as solutions may come from the combination and improvement of several ideas.

Of course, not all new ideas should become products. New product ideas must pass a series of tests and analyses, which include considering realistic market possibilities and available resources. The purpose of testing several ideas is to identify the most viable and ensure its successful development and commercialization. The final selected product should still be run through further market tests and/or pilot operations before taking the final step of introducing it to the market. Otherwise, the production may be based on very limited or subjective information.

There are several methods available to guide a product analysis at this point. One of the most popular ones involves making a list of factors and giving each one a specific weight or value. Each of these factors is graded according to a scale, and a final grade is calculated for a total balance. If the final grade is above a specific minimum denominator, the idea for a new product is selected for further consideration and development. Products may be graded, as well, by categorizing a list of factors, such as cost, quality, sales volume, and risk, according to priority.

It is important to note that sometimes it is difficult to estimate costs given a lack of market information, rapid changes in market and technology, among other factors, creating a need for further research.

Many of the changes faced by a firm are the result of advances in technology, as has been the case in mass market products such as automobiles, telephones, and computers. In a seminal study published in 1975, business experts William J. Abernathy and James M. Utterback sought to identify the relationships that characterize the process of innovation. They saw innovation as a distinct series of development stages. Abernathy and Utterback argued that these relationships predict there will be patterns for encouraging innovation, which may stem from market, or production needs, or from new technology. Studying these relationships can also help foresee types of innovation and barriers to innovation. The model developed by Abernathy and Utterback is still used in the fields of business administration and innovation. They generally follow these three phases:

First Phase—Uncoordinated. The initial life of a product is characterized by constant change occasioned by phenomena such as market uncertainty and technological change. The focus on this phase is creating unique products and maximizing performance. The rate of product change is expected to be fast and margins large. The production process shows a low level of volume and scant coordination. Here, innovation is high and operative decisions flexible. This applies to material goods as well as to services. A couple of useful examples, for example, are the rapid rate of innovation in the health services and fast food processes.

Second Phase—Segmental or Standardization. The product is faced with intense competition. Possibly, there are many similar products in the market. Operations managers are pressured to respond with a greater degree of cost control. Margins are reduced. There is more coordination of production flow, tasks become more specific, automation is introduced as well as more rigorous planning and control. In fact, some secondary processes may become highly segmented or automated. This takes place when the cycle of the product has reached a sufficient volume and become stable. It is important to bear in mind, however, that high levels of mechanization are impractical on small businesses, such as small farms, which may lead to a different type of innovative process.

Final Phase—Systemic. Here, the product reaches “maturity” and competition becomes even more intense. An even higher standardization is required. At the same time, cost reduction is emphasized while striving to maintain acceptable standards of service and quality. At this point, the process has become highly integrated and automated. This, in turn, poses a problem for further innovation: It is often the case the system has become so integrated and automated, a change in any of its parts will have a strong impact in all of the process. It becomes very difficult and costly, then, to introduce product changes in the final phase of development.

Further Insights

While knowledge gained by market and academic research is important in the field of product development, many companies foster forums or spaces in which successful entrepreneurs can share with others the strategies that have worked for them. Much of the knowledge gained has been accrued “hands on,” that is, through actual trial and error in product development and commercialization. In fact, successful entrepreneurs argue for the importance of learning from failures, perhaps even more than from cases of success. Among the recommendations from successful entrepreneurs are the following seven, which in a general extent, also align with stages recommended by more technical experts (Goodman, 2015).

1. Asking for Feedback. Prototypes—early models of a product—should be tried out in the early stages of a product’s design and development by individuals selected from the target market; that is, by potential customers. These individuals should be able to provide honest feedback about all aspects of the product, from material to performance. No detail is too small. Feedback can then guide changes in the prototype. In this manner, a firm may avoid producing something large-scale, only to have it fail in the market. The more a firm has to re-design a product, the costlier it will be. Research and testing that produce appropriate feedback, then, are crucial to successful product development.

2. Straightforward Design. Product design is of paramount importance. In the modern marketplace, the essentials of branding and image are also important. All products should be coherent with the principles and lines represented by the market brand. The simpler the initial design, the better; that way, it is easier to understand and use by consumers and allows for flexibility in the incorporation of future changes.

3. Risks of Cutting Corners. Successful entrepreneurs warn against skimping in the design, materials, or production of a product. Managers should aim to create good quality products that enhance company reputation. Many firms visit suppliers’ sites to ensure not only that the material is of expected quality, but also that the supplier operates in compliance with norms and standards enforced in local and global markets. It is also important to maintain open channels of communication with manufacturers and to provide as many product specifications—or “specs”—as possible. Finally, products should be tested sufficiently before proceeding with large scale production.

4. Pricing. One of the costliest mistakes for a firm to make is to fail to consider all overhead costs when pricing a product. Market research can provide information about how much consumers are willing to pay for a product. Managers should know the realistic margins they can expect from a product, taking into consideration both sales points and final consumers. This will provide enough information about the viability of developing a product for that market and help analyze at which point costs may be reduced. Experts, however, claim there is some more pricing leeway when the product is uniquely new to the market as opposed to when it is introduced in a market already glutted by competition.

5. Stocking. It is important to keep a realistic balance between stocking sufficiently and overstocking. Successful retailers tend to overstock minimally according to what they calculate they will sell, which is approximately by factor of 10 percent. Other issues must be taken into account, including storage space, production turn-around (according to market demand), and market season. Because every industry operates according to different dynamics, stocking is one of the most complex issues a firm has to face.

6. Intellectual Property Laws. Production managers should have expert counsel on intellectual property laws, such as those addressing trademarks, copyrights, and patents. It is important to understand how the laws protect a firm’s product. It is also imperative to ensure, before launching a product, that it does not infringe the intellectual property rights of some other firm or individual. It is possible to patent a product across many countries, although that can become very costly. Many companies register their products in their country of origin and later trademark or patent it in other countries as it becomes appropriate. Most property rights, however, are temporary and last only a specific number of years.

7. Considering the Target Market. To become acquainted with the realities of the target market, many entrepreneurs recommend developing a prototype, running it through a trial phase, gathering feedback, and employing other techniques that gather knowledge about consumer needs, wants, and preferences. They also warn against running into large production and marketing to big retailers too soon, which requires a large investment at a point in the product life cycle that is still rife with risk.

Issues

Contemporary firms face many challenges in relation to product development. One of the most common, for example, is identifying when a need exists to develop new products or redesign existing ones. An experienced manager may pick up on a number of signals, such as decreased sales, increased market competition, pressure to lower prices, adoption of new technology, and customers asking for product changes. These changes may be gradual or sudden, and seasoned product managers must be ever vigilant.

Another challenge is dealing with market changes caused by environmental concerns. Wide-ranging legislation related to the environment is a large factor in manufacturing and extends even to transportation and eventual disposal of the product. People are more aware than ever that all phases of a product’s life, from resource extraction to its production, distribution, use and disposal, has an environmental and social impact. There is growing demand for products that leave a minimal environmental footprint throughout their existence and do not rely on the exploitation of workers for manufacturing and distribution. Firms are under growing pressure to engage in good practices, such as reducing carbon emissions, energy consumption, and pollution.. Nevertheless, for a firm to be sustainable long-term, it must also find ways of reaching these goals in ways that are financially feasible (Romli, Prickett, Setchi & Soe, 2014).

Globalization and cultural diversity has also caused firms to face interesting challenges. Culture is reflected in the values, beliefs and preferences that societies prioritize. It is also expressed in the consumer products people prefer. Until the 1950s, firms relied on market theories that focused on product function and durability. However, new psychology perspectives appeared, which included findings on the symbolism embedded in products and the importance of tapping into consumers’ emotions. This became particularly true in the more developed countries, in which patterns of consumption largely exceed subsistence levels.

Moreover, many product developers began to include “planned obsolescence” into their products. That is, they designed products to have a limited life cycle so that after a certain time customers would be impelled to buy a newer version. In other words, many products ceased to be manufactured to last a lifetime, and customers eventually ceased to expect durability.

Moreover, national cultures, formerly very well defined, began to converge on the consumer front as a result of technological advances and globalization. This led to a growing demand for global brands. National brands, however, may outperform global brands, especially where negative symbolic representational meanings are ascribed to a brand, for example, in the case of a target market that perceives the product’s country of origin as hostile or predatory (Jakubanecs & Supphellen, 2014).

Finally, firms often face challenges predicting which product will be successful in the market, because of the vast array of complex variables faced in every society, many of which are unpredictable. Research, however, has found that customer participation is significantly tied to product development performance, especially in the cases of product redesign or innovation. For example, a recent study has found that users develop 77 percent of innovations in scientific instruments and 67 percent of innovations in other related technological fields, such as the production of semi-conductors. Nevertheless, the notion of customer participation is very new and not often included in product development projects. Therefore, experts recommend product managers find ways to include customer participation in order to promote innovation more efficiently. Involving customers is likelier to increase new product outcomes and enhance competitive advantages (Wojung & Taylor, 2016).

Terms & Concepts

Brainstorming: A spontaneous group discussion meant to stimulate creativity and the production of ideas.

Brand: An identifying image or mark that references a product. A particular company name and/or product, including the values and ideas associated with it.

Function: The capacity to serve a product’s purpose adequately.

Innovation: Transformation or change, often related to sudden, novel, or revolutionary breakthroughs.

Planned Obsolescence: In production areas such as product and industrial design, designing a product purposefully to last only for a limited time, so that its usefulness will run its course and the user will need to purchase a new one.

Product Manager: A person usually in charge of many aspects of the development of a product, from its discovery or definition, to its material development, market introduction, and user experience.

Prototype: A preliminary model of a product, meant to serve as an example for others to be produced.

Bibliography

Bolumole, Y. A., Calantone, R. J., Di Benedetto, C. A., & Melnyk, S. A. (2015). New product development in new ventures: The quest for resources. International Journal of Production Research, 53(8), 2506–2523. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=100936080&site=ehost-live

Fang, E., Lee, J., Palmatier, R., & Shunping, H. (2016). If it takes a village to foster innovation, success depends on the neighbors: The effects of global and ego networks on new product launches. Journal of Marketing Research, 53(3), 319. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=115993495&site=ehost-live

Goodman, M. (May 16, 2015). The 7 steps of effective product development. Entrepreneur.

Jakubanecs, A., & Supphellen, M. (2016). Cultural embeddedness of products. International Journal of Market Research, 58(2), 301–323. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=113837630&site=ehost-live

Lukić, T., Džamić, V., Knežević, G., Alčaković, S., & Bošković, V. (2014). The influence of organizational culture on business creativity, innovation and satisfaction. Management, (73), 49–57. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=101723400&site=ehost-live

Romli, A., Prickett, P., Setchi, R., & Soe, S. (2015). Integrated eco-design decision-making for sustainable product development. International Journal of Production Research, 53(2), 549–571. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=99546439&site=ehost-live

Sawhney, M. (2016). Putting products into services. Harvard Business Review, 94(9), 82–79. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=117516202&site=ehost-live

Usheva, M. (2015). Creativity, creations, and innovations in the management of small and medium-sized business. Economic Processes Management, (2), 14–28. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=116662511&site=ehost-live

Woojung, C., & Taylor, S. A. (2016). The effectiveness of customer participation in new product development: A meta-analysis. Journal of Marketing, 80(1), 47–64. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=112613177&site=ehost-live

Suggested Reading

Abernathy, W. J., & Utterback, J. M. (1975). A dynamic model of process and product innovation. omega. The International Journal of Management Science, 3(6).

Kong, T., Li, G., Feng, T., & Sun, L. (2015). Effects of marketing–manufacturing integration across stages of new product development on performance. International Journal of Production Research, 53(8), 2269–2284. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=100936067&site=ehost-live

Kuester, S., & Rauch, A. (2016). A job demands-resources perspective on salespersons’ market intelligence activities in new product development. Journal of Personal Selling & Sales Management, 36(1), 19–39. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=114016376&site=ehost-live

Olsen, D. (2015) The lean product playbook: How to innovate with minimum viable products and rapid consumer feedback. Hobocken, NJ: Wiley.

Tortorella, G. L., Marodin, G. A., Fettermann, D. C., & Fogliatto, F. S. (2016). Relationships between lean product development enablers and problems. International Journal of Production Research, 54(10), 2837–2855. Retrieved October 23, 2016, from EBSCO Online Database Business Source Ultimate. http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=114435019&site=ehost-live

Ulrich, K., & Eppinger, S. (2015). Product design and development. New York, NY: McGraw-Hill.