Benefits of developing new products
- Meeting changing needs: tastes, technology and lifestyles move on, so Warburtons added thins and wraps as customers began buying fewer standard sliced loaves.
- Growth in sales and revenue: a successful new product brings in customers the business did not have before, and can open a whole segment it was not selling to.
- Spreading risk: a wider range means the business is not depending on one product, so decline in an old line does not sink the whole firm.
- Staying competitive: a business that keeps selling the same thing loses customers to rivals offering something newer, so new products defend market share as well as building it.
- A stronger brand and a better price: a product that feels current and better than the old version can be sold at a higher price, and it keeps existing customers interested.
Example
- Greggs developed a vegan sausage roll with Quorn and launched it in 2019, and it sold out in shops across the UK within days.
- The new product reached customers who had never thought of Greggs as a shop for them, so it added sales rather than simply moving them from the meat version.
Risks of developing new products
- The cost comes first. Research, prototypes, testing, new machinery and launch promotion are all paid for before a single unit is sold.
- Most new products fail. Dyson spent around £500 million developing an electric car and cancelled it in 2019 after deciding it could never be sold at a profit, and none of that spending came back.
- Cash leaves early. Money goes out months or years before any comes in, which can leave a small business short of cash even when the product eventually succeeds.
- Rivals copy success. Within months of the Greggs vegan roll selling out, other bakeries and supermarkets had their own version on sale, which shortens the advantage.
- Damage to what already sells: a poor new product harms the reputation of the whole range, and a good one can take sales from the business's own existing products rather than adding to them.
Common Mistake
- Whether the risk is worth taking depends on the business, so a large firm with plenty of cash can absorb a failure that would close a sole trader.
- It also depends on the evidence, because thorough market research and small-scale testing cut the chance of failure but never remove it.
Note
All of that spending on research, design and testing happens in the research and development stage of the product life cycle, when the business has no sales at all, which is covered in the article on the product life cycle.
Product design
- Good design has to get three things right at once, and pushing one too far usually damages another.
- Function: the product must do its job reliably and safely, because a kettle that boils slowly will not be bought twice however smart it looks.
- Appearance: how it looks and feels makes it stand out on a crowded shelf and tells customers at a glance what kind of product it is meant to be.
- Cost: it must be cheap enough to make that it can sell at a price the target market will accept and still leave a profit, so cheaper materials tempt a business even though they weaken function or appearance.
Example
- Dyson designs its cordless vacuums around a motor small enough to sit in the handle, which is what makes them light to use and unlike a traditional vacuum to look at.
- That design costs a lot to make, so the machines are aimed at customers willing to pay a premium rather than at the cheapest end of the market.
Image and the needs of the target market
Definition
Target market: the particular group of customers a product is designed and sold to, described by things such as age, income, location and lifestyle.
- Design decisions start with who the product is for, because a product built to please everybody appeals strongly to nobody.
- Product image is the impression customers hold of a product, built from its design, name, packaging, price and promotion, and it is taken further alongside the unique selling point in the article on product differentiation.
- The image has to match what the segment expects, so plain recycled packaging and a higher price suit a brand sold on being ethical, while a product for young children needs bright colours and a name they can say.
- When design and image fit the target market, customers feel the product was made for them, and that is what turns a first purchase into a repeat one.
Example
Gymshark designed its clothing, its website and its whole image around young gym-goers who follow fitness accounts online, which is how it grew into a major brand while selling mainly through the internet.
Exam technique
- Analyse the benefits and risks of launching a new product needs both sides and then a decision, so say clearly whether this business should go ahead and why.
- Base the decision on the firm's own position, such as how much cash it holds, how strong its research is and how quickly rivals could copy it.
- On design questions, name the target market first, then show how one design choice serves that group and what it does to sales.
Self review
- Give three benefits to a business of developing new products.
- Give three risks, and say which is the most serious for a small business.
- Why does developing a new product put pressure on a business's cash before it earns anything?
- What three things must good product design balance?
- Why should the design of a product start with its target market?
