Product Development Must Be An Ongoing, Intentional Process

Businesses are always in a rush to get new products to market. But how many new products or new businesses fail because the concept is not quite executed correctly for the intended target buyer? When a company doesn’t take the time to do it right in the first place, it somehow has to find the time to correct it later, often at great cost in unnecessary spending, lost time, lost sales, and lost market share.

The fastest way to go out of business is to introduce a great idea, but to never completely deliver the features or benefits that were promised. People who initially buy and then reject a new product are almost impossible to interest in trying the product again, no matter if it is improved. Small companies who use the real marketplace to develop and refine a new product may never realize the sales potential of the product without a conscious plan for success.

It is estimated that over 40 percent of new packaged consumer products fail. Some 20 percent of new industrial products fail. And 18 percent of new service products fail. If line extensions of current products are included, the failure rate for new packaged consumer products increases to 80 percent, according to Philip Kotler in Marketing Management.

A typical new product development path, which is often used by large companies (such as Procter & Gamble, Kraft/General Foods, Nabisco, etc.) can also be modified for new products by smaller companies:

1. Develop (or confirm) company mission.
2. Determine and refine product development strategy.
3. Generate new product ideas.
4. Screen ideas for potential profitability and fit with company goals.
5. Develop and refine new product prototypes.
6. Develop and refine packaging, pricing, and advertising strategies.
7. Measure success of the new product following its introduction.

New Products Must Align with Company Mission Statement

Small companies seldom take the time to discuss or write out their company mission, but they should. A company mission statement can be a powerful force to clearly define your company’s purpose for existence. Moreover, aligning your actions with your company’s over-arching mission will pay measurable financial dividends over time.

The commitment to formulating a company mission can be critical to your company’s success. It helps keep management focused on preserving or strengthening the company’s unique competitive niche. It can also prevent panic and unwise marketing or spending responses to meet an indirect thrust by competitors into your market.

The most successful company missions are measurable, definable, and actionable statements with emotional appeal that everyone knows and can act upon. For example, a mission to “be the best health-care provider in the world” for a multi-national HMO organization may sound good, but in reality it is too vague for people to act upon. What constitutes “best”? “How is “best” measured? In contrast, Honda’s mission statement — “beat GM!” — is better because it’s a statement that can be measured every day by every employee.

Mission statements can also affect company strategies and tactics. If Honda Motors were to change its mission to “Beat Toyota,” different strategies would be called for, along with different geographic tactics in sales, advertising, and distribution of cars.

How important is it to define your company’s mission? Consider a famous U.S. refrigerator manufacturer whose sales were growing only at the rate of new home-building during the 1950s. They undertook a years-long project to define whether they were in the business of building refrigerators to preserve food or in the business of food preservation. They decided they were in the business of food preservation, which got them eventually into new product and business areas such as artificial atmospheres (e.g., nitrogen for fresh fruit preservation, freeze-drying technologies) and increased their sales from hundreds of millions of dollars to several billion dollars by the 1980s.

Creating a Workable Company Mission

An effective mission statement is difficult to write. A mission statement must be more than a catchy slogan or a meaningless, feel-good phrase, such as “be the best.” In fact, large companies often spend months and many dollars attempting to clearly define the best mission statement for current circumstances. Companies that have a clear “vision,” and management that can articulate it and communicate it to all employees, have the basis for a call-to-action mission statement.

A “call to action” mission statement provides key attributes that are often missing in traditional company mission statements. An effective call to action mission statement:

• elicits an emotional, motivational response in company employees;
• is easily understood;
• can be translated into individual action every day;
• is a measurable, tangible goal;
• is firmly rooted in the competitive environment in which the company operates.

A company’s mission statement must also take into account:

• company history and traditions;
• management preferences;
• distinctive competencies of the company;
• company resources;
• competitive strengths and weaknesses.

A good mission statement should provide vision and direction for your company for at least 10 years. Ideally, it should not have to be revised every few years with changes in the company’s environment. However, the company mission statement must be revised if it is no longer appropriate or has lost significance or relevance.

For an example of the value a mission statement can provide, see our case study about how a mission statement enabled a small store to co-exist with a major chain store.

Power of Mission Statement Case Study: Fred’s Grocery

Fred’s Grocery, a small one-store business, suffered sales declines when a large chain supermarket opened in the neighborhood. Fred initially considered lowering prices and adding many new items to compete. However, this strategy would cause great expense and lower margins—and he still would not be able to compete with the scale of the large supermarket chain.

Fortunately, a family discussion about the “mission” of Fred’s Grocery caused Fred to respond in a less direct, less costly, less risky manner.

Fred and his family realized that their mission was to serve the convenience needs of local, upscale neighborhood shoppers for specialty items and “fill-in” grocery items that they needed. With this mission in mind, Fred and his family decided they would offer more services and specialty items targeted at the high-end customer than the larger chain store. Plus, their array of specialty goods, prices, and services also separated them from convenience store chains like 7-Eleven.

To appeal to the tastes of their upscale, target demographic, they added specialty items to their store, putting in an espresso coffee bar, wine kiosk, and food/flower gift assortments. They upgraded the number of fruits and fresh vegetable selections and added fresh, warm breads and cookies and limited the number of “convenience store” items they carried to only those likely to be necessary to their ideal customer. To emphasize their commitment to customer service, Fred’s employees carried all groceries to the shoppers’ cars and apartments. They also delivered gift baskets/flowers at no extra charge within a five-block radius of the store.

When the chain supermarket opened its door, the majority of Fred’s shoppers were spending an average of only $12, considerably less than at the larger chain store. After one year, Fred’s Grocery realized its best year ever and increased both shopper traffic and average sale by 100 percent to an average of over $25 per shopper. Fred felt the new chain store was the best thing that ever happened to his business, thanks to the time he took to discuss and refine his mission statement.

Commit to Ongoing Product Development

Once you’ve created your company’s mission statement, or have explicitly recognized the mission you’ve been pursuing, you can begin considering how to accomplish that mission by developing and refining your product or service offerings.

Today’s accelerated rate of change and information growth means small companies inevitably will face increased competition in their market niches. To remain successful, small companies need to embrace and seek out change, rather than avoid it or wait until change is forced upon them by competitors.

Sadly, continuous new product development is often a hit or miss program in smaller companies. Rather than view new product development as an ongoing and necessary aspect of business, small companies often introduce new products solely as a reaction to meet competitive challenges or because of a fortuitous development of proprietary technology.

Today, more than at any time in history, small companies must innovate or be left behind by competition. The good news is that small companies are usually more nimble and responsive than large companies. They can do things faster, at less cost, and less risk than larger competitors.

There are two primary product risks in small business development:

• introducing a product that people won’t buy
• not introducing new products often enough

The first risk can be greatly reduced by knowing your target customers and doing sufficient market research at each step in the development process. The second risk can be eliminated by understanding the changing market conditions and committing to a product development strategy.

Small Businesses Must Embrace New Product Development

Change in consumption patterns, buyer wants/needs, competitive entries, product technology, economic patterns, pricing, features/benefits, distribution, advertising spending, promotion, and marketing/sales strategies can significantly affect the need to develop and introduce new products in a category.

One thing is certain: The rate of change is accelerating. The world’s knowledge base doubles every few years with a consequent increase in buyer sophistication and demands. And small businesses are the first to be affected by changes in their marketplace. The majority of new consumer products are not patentable and thus are easily duplicated by other competitors. And many small companies do not have the resources to spend heavily to protect a new product idea from copycat competitors. Their only advantage is to saturate available categories of buyers and retailers as quickly as possible.

Small Businesses are Nimble

In larger companies, new product development may take two to five years before a new product is rolled out nationally. In smaller companies where managers may be closer to their customers, buyers, and suppliers, and where endless meetings are not required in order to get approval of new ideas, faster development and testing of new product ideas may occur. It is not unusual for smaller companies to develop a prototype new product and introduce it nationally within six to 12 months. How? And at what risks and costs?

Smaller companies often let the real marketplace do the development and refinement of new products. For example, in the food business, small companies may take prototype samples to a few key wholesale customers for initial evaluation and comments. If the wholesale buyers love the product and insist on buying and selling it, a new business is born.

Refinements in product, packaging, pricing, positioning, advertising, and unit counts may be made with each production run, with initial test-marketing done in one or two locations prior to rolling out in a larger geographic region. For the purposes of this discussion, we consider product refinement (e.g., a restaurant continually upgrading menus and adding new dishes) the same as introducing a completely new-to-the-world product or service.

The bottom line is that small businesses must discover a unique service or product niche to fill and they must continually be alert for changing customer needs, wants, and interests, along with competitive changes in product and service which affect them.

Example

Hawkins has become known as the highest quality garden tools and accessories company in the home gardening market. Hawkins Tools are marketed directly to consumers via catalogs instead of in retail stores. They are also among the most expensive gardening tools available. Until Hawkins products were introduced, most of the home gardening market had to make do with garden tools sold through hardware stores.

Hawkins took advantage of all three unique opportunities to develop unique product development strategies, preemptive product offerings, high-quality/premium prices, and a unique distribution system to generate two to three times the normal margin of garden tool manufacturers.

Your Market Role Determines Your Product Development Strategy

In order to develop and implement a consistent and effective new product development strategy, a small company should consciously decide on its position within its category of products. There are four major positions within any business, industry or service segment:

1. market leader
2. niche expert
3. follower or improver of competitors’ products
4. innovative leader

Smaller companies are most likely to adopt either a niche or follower posture. It is unusual for a small company to be a market leader, unless the product category is so small and specialized that it cannot support more than a few competitors.

In deciding how to position the business, small companies should consider their resources, versus those of their competitors, to:

• innovate;
• research and develop of new products;
• introduce new products;
• educate buyers about new products; and
• compete in marketing program support expenditures.

Niche Experts Have Unique Advantages

Most small business owners instinctively realize that a small company is particularly vulnerable to larger competitors with similar products. Product development strategies for competing against large companies with significantly greater resources should concentrate on market segments that have the lowest probability of attracting larger competitors:

• segments too small or specialized to interest larger competitors
• niche segments that preclude the entry of most larger competitors because of:
  • preemptive technology or expertise of the smaller company
  • local/regional strengths of the smaller company
  • unique distribution strengths of the smaller company
• premium-priced/quality or low price/commodity product segments outside the mission of larger companies