Many companies look for new product development strategies as a way to stay relevant. Although some companies can survive with the “spaghetti-on-the-wall” approach, launching one product after another, and “testing” them in the market to see what sticks, this can be a very inefficient and costly approach over time.
Fortunately, there are other alternative new product development strategies that can be more efficient.
Companies should adopt different new product development strategies at different times depending on the circumstances they find themselves in. Sometimes, the situation requires a rapid defensive response, sometimes, they need to invest in long-term innovation from scratch.
As Urban and Hauser put it in their book Design & Marketing of New Products, (1993), “A good strategy includes a portfolio of product development strategies that are balanced to the demands of the situation a corporation faces.”
Urban & Hauser outline a range of new product development strategies companies should consider. They are classified as Reactive or Proactive, depending on how a company handles pressures from the market and how it decides to use external and internal sources of product development.
Proactive Product Development Strategies
These are grouped based on the level of initiative and investment companies take in developing new products. They don’t wait for things to happen in the market.
These companies are constantly exploring, testing and investing in new product development either internally or externally. Their goal is to preempt competition.
Investment in Market Research
Companies engaged in this strategy are continuously doing research to identify customer needs and developing products with benefits to satisfy those needs. This requires the investment of resources in understanding those needs.
Hiring experienced market and UX researchers and suppliers, championing research across the organization, and creating a customer-centric culture are pillars of this strategy.
Investment in Research & Development (R&D)
Many product-focused companies use R&D to gain an advantage with technically superior products. However, product features are nothing if they don’t benefit users.
The new-product development process has gone through a major shift at many companies, particularly in the digital world, trying to make it speedier, more flexible and in tune with users’ expectations.
Unfortunately, in the name of speed and flexibility, the “spaghetti-on-the-wall” approach often shows up these days under the new “agile” development process, especially among startups. The integration of UX research in the new product development process is paramount to the success of this strategy.
Investment in Entrepreneurship
This strategy involves investing in idea(s) generated through the entrepreneurial spirit. This is the principle of startups and internal structures, in established organizations, allowing employees to work on their own inventions on a part-time basis.
A culture of failure acceptance is key for this strategy to succeed. Amazon is famous for its trial-and-error efforts looking for new services and products to offer.
In companies with resources, often iterative product testing is embedded in the process, allowing them to learn from failure.
In the case of startups, due to ego or ignorance, many go to market without much research. Four out of ten companies fail because there is no need for their products in their market.
When startups consider market research as an investment and are open to learning from customers, market research and UX research can help mitigate failure, especially for small companies.
Companies can go into alliances and pool together skills in technology, marketing, research, production, finance or geography to become more competitive without carrying the full risk of product development.
Creating alliances is often a good strategy for small organizations if they are able to find partners to complement them. Alliances that share the cost for market research and UX research can accelerate their new product development efforts.
These are formal alliances that legally combine several organizations. These can be fully acquiring a company or creating joint ventures to gain access to resources of the involved organizations: new products, technology, markets, etc.
The problem with this approach often arises if the cultures of the companies being merged are too different. Companies that lose their customer focus in the merge tend to do poorly with this strategy.
Reactive New Product Development Strategies
As the name suggests, these strategies describe companies’ reactions to pressure from the market as they occur.
Of all reactive strategies, this is the most friendly and closer to a customer-centric approach to new product development. It describes companies that make product improvements and changes or develop new ones after listening to customers’ requests and complaints.
Although it is admirable when companies listen to customers, this strategy can lead to missed market opportunities by coming with solutions too late, if competitors are already on the way to develop products for unmet needs. Consequently, companies are likely to gain more if they are proactive in the use of market research.
Companies involved in a defensive strategy are trying to protect the profitability of existing products when competitors, cultural, and economic trends upend a company’s product category. These may include price reductions, increased advertising, new brand positioning, and “new & improved” products.
At one point or another, companies get involved in some sort of defensive strategy. Those that succeed, often manage to include customer research, albeit reactive, to find a quick solution.
However, more often than not, there is no time, budget, or willingness to engage in market research or UX research increasing the risk of failure. It is better to be proactive than reactive when it comes to research.
Copying competitors’ products is an old strategy, which is even more rampant today both online, with e-commerce and the larger reach of Amazon, and offline, with store brands. Cheaper and often low-quality versions of many products can be found in many categories. The success of such a strategy depends on a deep understanding of customers in a product category and brand positioning.
This strategy involves not only copying a product but improving it. This strategy can help identify a product niche where it can provide unique benefits. This is the story of how Microsoft Excel stole users from Lotus with a better graphical user interface (GUI). As you probably guess, user research is also needed for success with such a strategy.
According to Urban and Hauser, to select the right strategy, a company needs to understand its situation taking into account:
- Growth opportunities
- Scale of the market
- Strength of the competition
- Organization’s position in the production /distribution system
Proactive strategies are better suited for situations in which the company:
- Requires rapid sales growth.
- Is trying to enter new markets or segments.
- Can sell for high volumes or margins.
- Can achieve a patent or market protection.
- Has enough resources and time to develop new products.
- Can quickly block competitors from entering with a second-but-better strategy.
- Has a certain level of power over the distribution channel.
Reactive strategies are more appropriate for situations in which the company:
- Needs to focus on existing products or markets.
- Is unable to protect innovations through patents or other means.
- Operates in small markets that don’t allow to recover development costs.
- Has limited power over the distribution channel.
Companies, offering products and services, should have a portfolio of product development strategies. Whether or not a company is proactive or reactive depends on multiple factors that it should consider carefully.
However, whatever product development strategy the company chooses, it should include market research and UX research as part of it in order to succeed.