Product Development

What It Means

Product development is the process of bringing a new good or service to market. It includes generating ideas for a new product (the good or service), gathering information about the needs and wants of the target market (the segment of consumers to whom the product is intended to appeal), designing and engineering the product, and testing it in typical situations where it will be used. A product may be considered new whether it is entirely novel, new to the company that is developing it, or a modification of an existing product. Changing any aspect of a product can be considered product development. This can be, for example, replacing the engines in a jetliner with an improved design, adding a new flavor to a line of familiar soft drinks, or even changing the color of the package of a brand of chewing gum.

The product itself, including its development, traditionally is considered one of the four primary elements of product marketing. The other three are pricing, which is the process of determining the appropriate price for the product; promotion, for example, advertising and publicity; and distribution, or how the product gets to the consumer. Together these four elements are called the “marketing mix.”

In a growing economy, the range of available products tends to expand and the products themselves evolve as consumers typically seek to purchase the most updated and competitive version of a product they can find. In this kind of economic climate, ongoing product development is essential to a company’s long-term success. The most successful companies may generate nearly half of their sales from new products, compared with less successful companies, which generate only about 10 percent of their sales from new products.

When Did It Begin

In a general sense, product development has existed as long as have goods, services, and the marketplace (the world of trade and economic activity). Historically, products commonly consisted of agricultural produce and tools or implements made for use in the home or on the farm. Product development for many centuries simply involved fashioning the product to fit the purpose. Once goods such as textiles came to be crafted in sufficient quantity to be traded, people began to specialize in producing them in particular ways that made them appeal to the consumer. Even without formal structures for evaluating the market, farmers and artisans essentially were carrying out a kind of market analysis and improving their goods with an eye to competitors.

During the Industrial Revolution in the late eighteenth and early nineteenth centuries, the manufacture and distribution of goods was developed on a large scale. Relying mainly on machines for mass production, the industrialization of manufacturing allowed productivity to increase dramatically. Companies grew in size, products became more standardized, and production runs were longer, resulting in huge volumes of products.

Producers were able to turn out goods in greater quantity than the local economy could absorb. As distribution of these goods spread over greater geographical areas, the producers had less and less direct contact with their markets. Business operations gradually became market-oriented rather than product-oriented, meaning that producers had to concentrate on identifying the demands of their many varied and distant consumers and to develop products that would meet those demands. As the resources of business aligned itself with the needs and wants of the market, the process of product development grew more formalized and became an essential part of business activity.

More Detailed Information

Because most new products do not survive in the marketplace, developing a product that will be successful is a formidable task. Usually firms approach product development in a linear way, moving through a series of steps. The first step typically is an analysis of the market to be entered in order to understand it thoroughly. For example, if a company with a successful line of basic tooth-cleaning products wants to enter the market for toothpaste that fights the germs causing gum disease (part of the therapeutic toothpaste market), it first has to determine if there is a need for their product in that market.

A particularly challenging aspect of market analysis is sales forecasting. A company planning to introduce a new product needs to know the competition and to project a model for the growth of sales of its product in that competitive environment. Because real sales data is lacking, a company use surveys that attempt to read consumers’ intentions about purchasing products. The ability to sell a new product under a familiar and trusted brand name can boost a sales forecast. A brand symbolizes to the consumer all of what he or she knows about the company and its products. Seeing the brand on a new product, called brand recognition, serves to create a set of associations and expectations about the product that can have a powerful influence on the consumer’s decision to try it.

After a company decides to enter a market, it searches for new product ideas. These can come from a variety of sources such as users and sellers of existing products, inventors, company employees, and the general public. Some products are easier than others to develop. For example, if a company has chosen to develop a product similar to those already made by a number of competitors, it may use those existing products as reference points for its own.

Few new product concepts make it all the way to the marketplace. After product ideas are generated, they are screened to determine if they are feasible to make, affordable to invest in, and a good match with the company’s overall goals. In addition, new ideas must fit with the company’s understanding of consumer needs. Once a product concept has successfully survived the screening process, the product is designed. Consumers usually play an important role in the development of early models, called prototypes, of the product. Consumers are given prototypes to test under normal conditions of use and are asked to provide feedback. Any design changes that result from this consumer input may lead to additional rounds of prototype testing.

In the next step, called test marketing, the company promotes, distributes, and sells the product in a limited market, usually contained within a specific geographic area, to simulate the product’s introduction in the broader marketplace. This step allows the company to evaluate the reaction of consumers to pricing, advertising, packaging, and other aspects of the product and make final refinements. The drawback of test marketing is that it gives competitors an early opportunity to learn about a company’s new products.

Once the product is ready to be introduced to a national or international market, much of its success depends on whether consumers can be quickly persuaded to try it. For this reason, a company may offer a special introductory trial in which consumers receive the product free or at a discounted price.

In modern industrialized societies essentially all goods and services require ongoing product development. Consumer demands and the pressure of competition compel a business continually to reconsider the appropriateness of a product’s price, the effectiveness of the advertising and distribution system, and other factors. The “life cycle” of many products is very short. Automobile models, for example, are regularly redesigned and reengineered by manufacturers, and many consumer electronics constantly change in order to keep up with technological advances.

Recent Trends

Today’s global market has become more and more crowded with new goods and services, driven by consumers who can shop and compare values and prices with increasing efficiency (aided by the Internet) and who use their purchases for ever shorter periods of time. The faster a company can develop, test, advertise, and launch a new product, the more it can keep pace with its competition and the more it stands to profit.

Advances in communications and distribution methods have helped companies get their products through development and into the market more quickly than ever before. In addition, new technologies have played a significant role in speeding up product development. For example, computer-aided design (CAD) software allows engineers to create simulations of complex products (graphic computer models that can be tested for functioning and behavior under certain conditions) that previously might have taken weeks or months to develop. These simulations can serve as the blueprint for the product and can be useful for testing and refining of the product. Another process called rapid prototyping (RP) lets companies use CAD designs as directions for building three-dimensional physical models or prototypes of products with the use of computer-controlled equipment. Car manufacturers, for example, have used RP technology to create prototype components such as dashboards and transmission gears.