Whether you're an aspiring entrepreneur or a seasoned product manager, the process for new product development hardly ever gets any less exciting – or stressful. According to the Standish Group's 2020 Chaos Report, 66% of new software products fail. The troublesome development process of a new product might entail insufficient preparation, underestimated production costs, delays and unpredictable deliveries, and high costs of modification. Because of this, around 20% of new products die unremarkable and unnoticed death before they are even launched. Not exactly optimistic.
Still, launching new products is not something you can avoid if you want to stay afloat and grow. According to various reports spanning across the last decade (the latest being McKinsey one), more than 25% revenue and profits come from launching new products.
So, how do you build the developing a new product process in a way that isn't setting you up for failure from the very beginning? In this article, you'll find specifics, step-by-step stages breakdown, and some helpful examples. Let's dive in!
What is new product development?
Before we're ready to get into the nitty-gritty details of the new product development process, let's cover the basics first.
When it comes to growing your business and staying ahead in the market, introducing new products is a must. That's where new product development (NPD) comes into play. NPD covers everything from generating ideas to getting those shiny new products out there for people to enjoy. The goal? To expand product offerings, attract new customers, and boost those revenue numbers.
Now, let's talk about the different flavors of new products. Here are some common types you'll come across:
These bad boys are true innovators, breaking new ground with never-before-seen ideas or technologies. They're the ones that turn industries on their heads and create entirely new product categories. Think back to the first personal computers, electric cars, or those game-changing smartphones when they first hit the scene.
These products might not be brand-new to the market, but they're new to a particular company. It's like a company finding a treasure chest in a market segment they've never explored before. Think of Netflix. Known initially as a DVD rental service, it expanded its offerings by venturing into original content production. It created a new product line within their existing streaming platform. Obviously, Netflix didn't invent TV shows, or even streaming them. Still, with popular shows like "House of Cards," and "Orange is the New Black," Netflix became a trailblazer in the world of online streaming and original programming.
Additions to existing product lines
Sometimes, it's all about expanding the family. This happens when companies introduce new versions or variations of their existing products. It's like adding more flavors to the ice cream parlor or releasing a smartphone with a better camera or upgraded features. It gives customers more options and keeps things fresh.
Improvements and revisions of existing products
Ah, let's not forget about those improvements and revisions! Here, companies take their existing products and make them even better. They might tweak the design, add fancy new features, or use the latest tech to give their offerings a fresh glow. For instance, a software company releasing an update with improved user-friendliness and extra functionalities.
Moving on, we've got the repositionings. This is when a product decides to change its vibe and target a whole new set of customers. Let's think of Slack. Originally designed as an internal communication tool for a gaming company, Slack underwent a repositioning to become a comprehensive collaboration platform for teams across industries. Recognizing the need for efficient and streamlined communication in workplaces, Slack expanded its scope and transformed into a go-to platform.
Last but not least, let's talk about cost reductions. One effective approach is optimizing the software development process itself. By streamlining workflows, adopting agile methodologies, and leveraging automation tools, companies can significantly reduce development time and costs. This allows to lower the price for the consumers and engage new audiences.
Now that we know about the "whats," let's move on to "whys" of developing new products.
Why do you need to develop new products?
We've already talked a bit about staying ahead of competitors and those revenue percentages. Still, at the first glance it might seem that introducing new products is more pain than gain. So, let's explore the benefits of new product development.
Increased revenue and market share
By introducing new products, you have the opportunity to tap into additional revenue streams. Expanding your product portfolio allows you to attract new customers, retain existing ones, and ultimately increase your market share. Innovative and desirable products can stimulate customer interest, drive sales growth, and enhance overall profitability.
Competitive advantage and differentiation
In today's fast-paced and highly competitive business landscape, standing out from the crowd is essential. NPD enables your company to differentiate itself from competitors by offering unique, innovative, and superior products. Continuously introducing fresh offerings positions your business as an industry leader, capturing the attention and loyalty of customers who constantly seek the latest and most compelling products.
Customer satisfaction and loyalty
By developing new products that meet the evolving needs and preferences of customers, you can significantly enhance customer satisfaction. Addressing unmet needs, resolving pain points, or providing innovative solutions strengthens your customer relationships. Satisfied customers are more likely to become loyal advocates for your brand, leading to increased customer retention, repeat purchases, and positive word-of-mouth referrals.
Market expansion and diversification
NPD provides an avenue for market expansion and diversification. By introducing products that cater to different demographics, lifestyles, or geographic regions, you can unlock new growth opportunities and mitigate risks associated with relying heavily on a single product or market segment. Market expansion and diversification allow for sustained growth and reduce vulnerability to market fluctuations.
Technological advancement and industry leadership
Development of a new product often involves incorporating technological advancements, pushing the boundaries of innovation within your industry. Embracing emerging technologies enables your company to position itself as a pioneer, driving progress and shaping industry trends. Technological advancements not only enhance product performance but also streamline operations, improve efficiency, and create a competitive edge in the marketplace.
Brand enhancement and reputation
Successful innovation and new product launches contribute to building a positive brand image and reputation. Companies that consistently deliver high-quality, innovative products are perceived as trustworthy, reliable, and forward-thinking. A strong brand reputation fosters customer loyalty, attracts top talent, and opens doors to partnerships and collaborations, further fueling business growth.
From our experience, this should have convinced you that NPD is not something you can forego if you want your business to flourish. But then the next, practical question arises: how to develop a new product? For you to be able to tailor a viable strategy for new product development, we'll walk you through the process step-by-step.
Stages of the new product development process
To bring a new product to market successfully, businesses follow a structured and iterative process known as the new product life cycle development process. This process consists of several stages, each playing a critical role in the overall NPD journey. Let's delve into the key stages involved.
Stage 1: Idea generation
The first phase of new product development is idea generation, where potential product concepts are generated and explored. Idea generation can be sourced from both internal and external sources.
New product ideas from internal and external sources
Internal sources of new product ideas involve tapping into the creativity and expertise of individuals within the company. Employees at all levels can contribute ideas based on their industry knowledge, market insights, or customer interactions. These ideas can stem from R&D departments, marketing teams, sales representatives, or even customer service staff who have a deep understanding of customer pain points and possible solutions.
External sources of new product ideas include gathering insights from outside the company. This can be achieved through market scanning, competitor analysis, value analysis of existing products, customer feedback, and industry trends. External sources might also involve partnerships, collaborations, or acquisitions that bring in new ideas or technologies.
During the idea generation stage, it is essential to focus on product discovery. This involves exploring unmet customer needs, identifying market gaps, and understanding emerging trends. By analyzing customer problems, preferences, and behaviors, businesses can gain valuable insights that drive the creation of innovative and impactful product ideas.
A key aspect of idea generation is identifying customer problems and pain points. By empathizing with customers and understanding their challenges, businesses can develop solutions that address their needs effectively. This customer-centric approach ensures that the new product is aligned with the target market's demands and provides value. Analyzing customer feedback, conducting surveys, and observing market trends are some ways to uncover customer problems and generate ideas that cater to these needs.
Stage 2: Idea screening
Once a range of potential new product ideas has been generated, the next one of the new product development stages is idea screening. Idea screening involves evaluating and selecting the most promising ideas for further development. This stage aims to filter out ideas that are not aligned with the company's strategic objectives or do not have sufficient market potential.
One commonly used method during the idea screening stage is conducting a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats). This analysis helps assess the internal strengths and weaknesses of the company, as well as the external opportunities and threats present in the market. By evaluating the fit between each idea and the company's capabilities and market dynamics, the SWOT analysis enables informed decision-making and the identification of ideas with the highest potential for success.
Next in the list of the steps in developing new product is product validation. This involves conducting preliminary market research, concept testing, and gathering feedback from potential target audience. By seeking input from the intended users, businesses can validate whether the proposed product idea addresses their needs, solves their problems, and provides value. This stage helps ensure that the selected ideas have a strong market demand and are worth investing resources in for further development.
The following stages require a team. Linkup Studio is a Ukrainian outsourcing team, and in the video, we share how to integrate an offshore dev team into your business successfully.
Stage 3: Concept development & testing
After the idea screening stage, the selected ideas move into the concept development and testing phases in new product development. This stage involves translating the chosen ideas into well-defined product concepts and conducting concept testing to gather feedback and assess their viability.
During concept development, careful consideration is given to refining and shaping the selected ideas into tangible product concepts. This involves clearly defining the product's features, benefits, target market, positioning, and pricing. The goal is to create a compelling and comprehensive description of the product concept that captures its essence and potential value to customers.
Product concepts are the tangible representations of the selected ideas. They provide a clear vision and description of the proposed product, including its unique selling points, functionalities, and overall value proposition. These concepts serve as the foundation for further development and testing, providing a reference point for evaluating the product's potential.
Concept testing involves gathering feedback and reactions from a target audience to assess their perception, interest, and acceptance of the product concept. This can be done through surveys, focus groups, interviews, or online platforms. The feedback collected during concept testing helps validate the viability and appeal of the product concept, uncover potential concerns or improvements, and guide further refinements in the development process.
To have some practical tools for this stage, consider morphological analysis. This problem-solving technique helps identify and explore different possible combinations of features or attributes for a new product or solution. It allows teams to systematically break down a complex problem or product concept into its constituent parts and then generate a range of potential solutions by combining different attributes or features.
Concept-test surveys are another research method used to gather feedback and evaluate the viability and appeal of a new product concept or idea. These surveys are designed to assess consumer perceptions, preferences, and purchase intent regarding a proposed product before it is fully developed and launched.
Stage 4: Marketing strategy development
Once the product concepts have been validated through concept testing, the next stage is developing a new product strategy. In this phase, businesses define their marketing approach and formulate a comprehensive plan to introduce and promote the new product effectively.
During this stage, several key activities take place:
Target market identification
Businesses identify the specific target market or customer segment(s) that will be the primary focus for their new product. This involves analyzing market research data, customer demographics, and psychographics to understand the characteristics and preferences of the target audience. By clearly defining the target market, companies can tailor their marketing strategies and messages to resonate with the intended customers.
Positioning and differentiation
Positioning the new product in the market is crucial for its success. Companies determine how they want their product to be perceived by the target market and identify unique potential value propositions that differentiate it from competitors.
Marketing mix development
The marketing mix comprises the elements that businesses use to influence customer perceptions and drive product adoption. These elements include product, price, promotion, and place (distribution). During this stage, companies develop strategies for each element of the marketing mix to create a coherent and compelling marketing approach.
Sales and revenue forecasting
During these steps of the new product development process, businesses also forecast sales and revenue projections based on market research, customer insights, and competitor analysis. This helps estimate the potential demand for the new product and provides insights into the financial implications and expected return on investment. Sales and revenue forecasting guide resource allocation, production planning, and overall strategy of new product development.
Stage 5: Business analysis
Once the marketing strategy has been developed, the process of new product development progresses to the business analysis stage. During this stage, businesses conduct a comprehensive assessment to evaluate the financial and operational feasibility of introducing the new product. Business analysis might include:
Cost and profitability analysis
Businesses analyze the costs associated with developing, producing, marketing, and distributing the new product. This includes evaluating the expenses related to research and development, manufacturing, packaging, advertising, sales, and ongoing support. By estimating the costs and projecting potential revenues, companies assess the profitability and financial viability of the new product.
Sales projections and demand forecasting
Building upon the sales and revenue forecasting conducted in the marketing strategy development stage, businesses refine their projections and make more detailed assessments of anticipated sales volumes and demand. This includes analyzing market trends, competitors, consumer behavior, and any potential factors that could influence the demand for the product.
Risk assessment and mitigation
Businesses identify and evaluate potential risks associated with the new product. This includes assessing market risks, such as changes in consumer preferences or increased competition, as well as operational risks, such as production challenges. By identifying and understanding these risks, companies can develop strategies to mitigate or minimize their impact, ensuring a smoother product launch.
Market entry strategy
Businesses also determine the most appropriate market entry strategy for the new product. This involves considering factors such as distribution channels, sales force requirements, pricing strategies, and competitive positioning.
We covered the product discovery phase of the new product development process in detail in the video.
Stage 6: Product development
In this video on our YouTube channel, Linkup Studio’s CEO, Andriy Sambir, has discussed things to consider before building an app.
Only now in our stages in the development of a new product we move to, well, actual development. In this stage, businesses focus on transforming the concept into a tangible product through various activities. This includes prototyping and the creation of a minimum viable product (MVP).
Businesses create prototypes, which are early-stage models or samples of the new product. Prototypes allow for testing and evaluation of the product's design, functionality, and performance. They provide an opportunity to identify any design flaws, make necessary improvements, and ensure that the final product meets the desired specifications. Prototyping helps businesses refine the product before proceeding to full-scale production, saving time and resources in the long run.
According to an older McKinsey report, 60% of the companies prototype quite late in the development stage and only for internal use. However (and the 2022 report confirms it) rapid prototyping and introducing the users early on allows to develop a product with the better product-market fit and nip in the bud many issues.
Minimum viable product (MVP)
In addition to prototyping, MVP is often used during the product development stage. An MVP is a version of the product with the limited set of major product features required to meet the needs of early adopters and gather feedback for further development. By launching an MVP, businesses can test the market, gather valuable user insights, and iterate on the product based on user feedback. This iterative approach allows for continuous improvement and ensures that the final product aligns with customer expectations.
Our CEO gave grounded basics of MVP: its benefits, tips to use, and successful examples in the video:
Testing and iteration
Process for developing new products also involves rigorous testing and iteration to refine the service or app. This includes understanding product usage through conducting usability tests, functionality tests, and performance tests to ensure that the product meets quality standards. Feedback from internal testing teams and external beta testers helps identify areas for improvement and guides the iteration process.