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10.1 New Products from a Customer’s Perspective

LEARNING OUTCOMES

By the end of this section, you will be able to:

  • 1 Define a new product.
  • 2 Explain “newness” from the perspective of the customer.
  • 3 Explain the risks and rewards of developing new products.

New Product Defined

You’ve probably watched at least one episode of the popular television show Shark Tank, where budding entrepreneurs pitch their business plans to a panel of investors in return for funding. To date, over 1,000 sales pitches have been made on the show—some forgettable, others memorable—and some pitches have resulted in wildly successful businesses. Some of Shark Tank’s most successful products include the Squatty Potty (over $200 million in sales since appearing on Shark Tank), Bombas Socks (over $225 million), and Scrub Daddy (over $330 million).2

Perhaps you’ve got an idea for a new product that’s going to take the world by storm. If so, this chapter will be especially relevant for you. We’re going to explore everything about new products in this chapter: the stages of new product development, what facets of those new products contribute to their success or failure, how consumers adopt new products, and more.

You would think that a “new product” would be an easy definition, but the term can mean different things. In fact, there are five different categories of new products (see Figure 10.2), each one unique.

The different categories of new products are: new-to-the-world products, new-to-the-firm products, additions to existing product lines, improvements and revisions to existing products, and repositioned products.
Figure 10.2 Categories of New Products (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license)

Let’s look at these new product categories in more detail.

  • New-to-the-World Products: New-to-the-world products essentially are new inventions that create new markets. Some examples from products recently introduced include biomagnetic ear stickers for weight loss, cat self-groomers, and portable blenders.3
  • New-to-the-Firm Products: These are products that are new to a company but not to the world. It’s likely that marketers have seen a gap in the market and their product line and attempted to fill that void by adding a “me-too” type of product to their product line. For example, Nature Valley originally only made granola cereal but later introduced granola bars that could be eaten “on the go.”4 There’s a perfect example of a company that saw a gap in the market and added a product that wasn’t new to the world, but it certainly was new to Nature Valley.
  • Additions to Existing Product Lines: Recall that a product line is a group of related products marketed under a single brand. Additions to existing product lines are simple product line extensions, designed to “flesh out” the product line. During its 130+ years in business, Coca-Cola has launched a number of product line extensions. The next time you’re in a supermarket, look on the shelves in the soft drink aisle. You’ll likely see a number of different flavors and styles of Coca-Cola varieties, such as Coca-Cola Cherry, Coca-Cola Cherry Vanilla, Coca-Cola Vanilla, Coca-Cola Zero, and more.5
  • Improvements and Revisions to Existing Products: This is when existing products are improved. Think about how many times you’ve seen “new and improved” on the packaging of a product that you’ve been using for a while, like laundry detergent. As a concrete example, Meta (formerly Facebook) released its Oculus Quest 2 VR (virtual reality) headset and controllers late in 2021, which was simply an updated version of its original Oculus Quest.6
  • Repositioned Products: Another reminder: product positioning is the process that defines how your product is different from others on the market.7 Repositioned products are those that are retargeted for a new use or application. For example, Bayer repositioned its aspirin from treating headaches, fever, and inflammation to also safeguarding against heart attacks.8

Customer Perceptions of Newness

Just as there are different ways to categorize new products, there are different customer perceptions of newness. The difference in these perceptions is the result of how much change they cause in a consumer’s existing habits. Newness can be categorized three ways:

  • Discontinuous Innovation: Sometimes referred to as radical or disruptive innovations, discontinuous innovations consist of new-to-the-world products that are so different from products currently existing in the market that they require a significant change in consumer behavior when adopted. For example, think about how cell phones have changed the way we communicate today. Older cell phones did one thing—make and receive phone calls. With a smartphone, you can still make phone calls, but you can also listen to music, send and receive emails, surf the Internet, conduct online banking, and get driving directions, to name just a few. Consider how learning to operate all the features on your smartphone required you to change your behavior.9
  • Continuous Innovation: This is the other end of the spectrum from discontinuous innovation. With continuous innovation, the existing product undergoes marginal changes and doesn’t alter customer habits. For example, when Sony introduced new TVs that promised sharper, brighter TV pictures, the picture quality was better, but as a consumer, it didn’t require you to change your TV viewing habits.10
  • Dynamically Continuous Innovation: With dynamically continuous innovation, some changes in consumer habits are necessary, but the changes aren’t as large or small as you see with the two other types of innovation. For example, manual and even electric typewriters have gone the way of the dinosaur since the advent of PCs, but the keyboard layout remained the same, so little change was required with consumer habits.

Risks and Rewards of Developing New Products

We started this chapter with a discussion of Shark Tank and some of the products that have been successful in the market as a result of the television show. However, not all products are successful, and there are both risks and rewards when developing new products.

Rewards of Developing New Products

You have probably heard the saying “No risk, no reward,” and nothing could be truer in terms of new product development. However, a company’s ability to maintain its competitive edge in the market requires a delicate balance between the necessity and the challenges of new product development.

We’ve already looked at Swarovski’s successful product launch of its Advent calendar, but let’s consider a few other examples to show you just how rewarding a well-executed product launch can be. Instagram, the social networking platform that allows users to share photos and videos, was first released in October 2010, and it quickly racked up 25,000 users in one day. The company now boasts that it has more than 1 billion (that’s with a “b”) monthly active users. Instagram succeeded by introducing bold features in its platform, from video editing features to interactive features like face filters and polling.11

And, of course, we can’t talk about successful product launches without mentioning Apple, whose original iPhone was one of the most successful product launches in history—racking up 1 million units sold within just 74 days of its launch.12

Keeping the success of these products in mind, let’s look at the reasons why products succeed.

  • Targeting New Markets: New product development gives businesses the opportunity to expand into new markets, providing an opportunity to connect with different target markets. This creates the added benefit of growing their customer base. For example, research from the Centers for Disease Control and Prevention (CDC) indicated that Americans were reporting symptoms of anxiety and depression since COVID-19 came about, so PepsiCo launched two new drinks that claim to support relaxation—Driftwell and Soulboost.13
  • Increasing Market Share: Think about market share as a pizza, and every company that participates in the market has a slice (obviously some slices are bigger than others). As the market grows, a company needs to expand with it in order to keep its share of that pizza, but it can also increase its market share—and take another slice or two of pizza—through new product development.
  • Increasing Revenue Stream: Revenue streams are all the ways a company can generate cash from the sale of its products or services. New products and/or services will create additional revenue streams that will generate extra income for the business, perhaps spurring even more new product development. For example, Apple generates revenue streams by developing new hardware products such as the Apple Watch and AirPods wireless headphones, and the company enjoys recurring revenues from services such as iCloud, Apple Music, and Apple TV+.

Risks of Developing New Products

Developing new products has many unforeseen issues and surprises, so it should come as no surprise to you that there are some significant risks associated with these efforts.

  • Lack of Differentiation: There can be many problems with the design of a product, including insufficient differentiation from competitors’ products. Perhaps the product or service did not solve enough problems or did not solve them sufficiently, or the product incompletely addresses the needs of the target market.

    For example, in 2021 Apple discontinued its HomePod smart speaker, which was not perceived as being sufficiently different from Amazon’s Echo despite offering high-quality music playback.

  • Financial Feasibility: New product development is expensive and can be financially risky for companies. It’s important that a financial feasibility study is conducted in the earliest stages of new product development to determine whether it’s worth launching the product or service in the context of sales and revenues.

    Financial feasibility is the primary reason why pharmaceutical companies typically don’t invest large amounts of money in developing a new drug if the market for the drug is small. Novartis was the exception to this rule. The company developed a drug that treats children under the age of two suffering from spinal muscular atrophy (SMA). According to the Cleveland Clinic, only 1 in 10,000 children suffer from this rare genetic mutation, but Novartis went ahead and developed the drug anyway.14 With a price tag of $2,125,000 for a one-dose treatment, it’s the most expensive drug the world has ever seen.15 You may be asking yourself, Is it worth it? Just ask the parents of a child suffering from SMA.

  • Technical Feasibility: Technical feasibility studies are equally important as a financial feasibility study. Does the organization have the technical resources to meet capacity? Can the technical team convert the idea into a working product or service?

    For example, while Taco Bell’s Doritos Loco Taco was in development, the team wasn’t sure it was technically possible to coat a taco shell with the iconic Doritos flavoring. Its research and development (R&D) department spent approximately two years developing over 40 prototype taco shells before it found the right combination of crunch, seasoning, and flavor.16

  • Poor Timing: Author Joshua Harris once wrote, “The right thing at the wrong time is the wrong thing.” This couldn’t be truer when it comes to new product development. You may have developed the best product or service, but if it’s introduced to the market at the wrong time, it’s likely to fail. The product development process can take a year or longer, and imagine the market changes that can take place during that time. A new competitor may enter the market before you do, consumer preferences and needs can change, legislative or environmental regulations can change, or the economy can go south before you’re ready to launch.

    The situation with in-home COVID-19 testing kits is a perfect example of poor timing. By the time the US government made these kits widely available to the public, the need for these tests had greatly diminished because the majority of the population had already been vaccinated.

Knowledge Check

It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.

1.
Many years ago, liquid soap was introduced in place of traditional bar soaps. This innovation changed an intrinsic feature of the product, but it’s used for the same purpose. This is an example of ________.
  1. discontinuous innovation
  2. continuous innovation
  3. dynamically continuous innovation
  4. noncontinuous innovation
2.
Coca-Cola, a behemoth in the soft drink market, decides that it is going to develop and market Coca-Cola popsicles. What type of new product would this constitute?
  1. New-to-the-world
  2. New-to-the-firm
  3. Improvements and revision to existing products
  4. Repositioned product
3.
Saundra went to the grocery store and purchased the same laundry detergent she’s been buying for years, but she noticed that the packaging had been changed and the label indicated that the laundry detergent was “new and improved.” What category of new products would the laundry detergent likely fall under?
  1. New-to-the-world products
  2. New-to-the-firm products
  3. Repositioned products
  4. Improvements and revisions to existing products
4.
Hoffman Enterprises has introduced a new product to the market that has undergone only marginal changes and doesn’t alter consumer use habits. What type of product has Hoffman Enterprises introduced?
  1. Discontinuous innovation
  2. Continuous innovation
  3. Intermittent innovation
  4. Dynamically continuous innovation
5.
Sources through which a business earns income from the sales of goods or services are known as ________.
  1. capital gains
  2. incremental income
  3. profits
  4. revenue streams
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