New product development is one of the most important marketing processes for many companies because it is responsible for the revenues and margins that a company can achieve and its ultimate value. Therefore, it is the identification of an opportunity in the market and ends with the successful launch of the product.
Designing a New product changes what we buy (and who we buy it from), changes what we make (and how we make it), changes how it gets to the customer, and changes how we market it to the customer.
We see four separate drivers for New Product Development.
- Introducing Trends in New Product Introductions
In most markets, and especially those relating to consumer products, the number of new product introductions per annum has increased dramatically. For example, a study into the consumer packaged goods market showed that new product introductions had increased around tenfold over an 18-year period. - Launches
Driven by consumer demand and fueled by advances in technology, companies have to bring more and more products to market in order to remain competitive. The companies best able to execute new product development will clearly have an advantage. This is partly about reducing time to market but also about making effective use of scarce internal resources. - Revenue Expectations
Product life cycles are shortening. As a result, companies are increasingly dependent on revenues from new products to drive their top lines each year. A recent study by Deloitte showed that, for the companies most dependent upon new products, the proportion of their revenue derived from these products would increase from around one-third to nearly a half over the next three years. - Growth and Balance
New product development allows companies to grow revenues and retain high margins by launching new products and creating new customers in new markets. Even when a company’s top line isn’t increasing, it needs a new product to replace existing products that are reaching the end of its life. Newer products typically command higher margins in the market, while older products are impacted by competitive challenges and waning customer interest. Well executed, new product development keeps a pipeline of new, high-margin products flowing to the market. - Value
Successful companies have higher stock market valuations than their less successful counterparts. This is because the market factors in the value of future growth and margins. And, as we have seen, this is largely a function of the new product development process. Put directly: new product development strategy drives growth, which drives value. By investing in the new product development process, companies are directly investing in themselves – and the returns are high. A recent study by CSFB/HOLT and Deloitte Consulting, published in the book ‘The Innovator’s Solution’ by Christensen and Raynor, shows how successful companies have valuations that far exceed the value of their underlying assets.
Stock Market Valuations Exceed Existing Asset Values High valuations allow companies to raise money in the markets at the best rates, acquire competitors, and attract the best people. All of these companies have one thing in common: a track record of growth and margins fueled by new products. Given the importance of new product development, it’s not surprising to find out that most people in business care about it. A recent study conducted by AMR Research showed this clearly. Asked what initiative would have the most impact on the overall business, new product development was the clear winner, ahead of more established investments such as CRM and SCM.
The CEOs of top companies have long recognized the importance of new product development.
Here are two recent examples: “The companies that know how to develop things are ultimately going to create the most shareholder value. It’s as simple as that.”
“You only get a position in the future by investing, creating something new, and staying ahead of the competition. So it’s simple: invest or die.”