Product development - Assignment Example

?Research Question: Is product development the best approach to have a competitive advantage over your competitors? Introduction: Various studies have been conducted on how a company can build a competitive edge over its competitors. Through majority studies it has been proved that though development of a new product might not be the only way of building competitive advantage but it is one of the best approaches that can be applied. Product development process is basically an introduction of a new product which every company has to go through at a certain point of time. Individual’s needs and wants change with time, therefore it is essential for the organization to tailor an existing product or develop a new product in accordance to those needs. Aims and Objectives: The aim of the research would be to find out whether product development is the best way to gain competitive advantage and in doing so achieve the following objectives: Impact of product development in the current fast-moving environment. Identify how product development can result in higher market share. Background and Methodology Presently, competition has increased so much that it has become essential for every company to gain a competitive edge over its competitors by adopting various strategies and methods. The purpose of this study is to find out the role of product development in achieving competitive advantage and increasing company’s market share. This research will be based on secondary data, where I would be going through various research reports, working papers and publications on product development. Literature Review: Though developing a new product is not at all an easy task to do, but to succeed and maintain your position in the industry, it is essential to build up a new product line. To do this, it is important to conduct a detailed survey in order to come up with a product that perfectly meets the requirements of your target market. Mark Abraham has defined product development as a process of creating and altering products delivered to the consumers and doing variations that are significant and demanded by the customers. He further said that an item can never be considered a product until it is not delivered properly. Therefore, the process of product development also includes various departments like marketing, testing, technical, quality service and many others within the organization. As mentioned earlier product development is a complicated process and the positive result can only be achieved if this process is broken down into various steps and each step is successfully completed. New product development not only helps meet the needs and wants of an individual which in turn increases company’s overall sale but also helps maintain its competitive position. (Mark Abraham, 2011) In another study which was conducted by Khade and Alan it is said, companies in order to gain competitive advantage should offer customers with what they demand and at a cost they are willing to pay for it. Competitive advantage can be gained by different means but two most feasible methods include: utilizing experience curve and through product development or innovation. The intelligent use of both these methods can help in achieving a competitive advantage. When does a company have competitive advantage? It is when a company is ahead of its competitors in terms of quality products, profit and attracting consumers. This can be done by producing superior products, providing excellent customer service and attaining lower cost. All this come under the process of product development. In today’s fast changing environment, it is difficult for the organizations to cope up with the growing needs of the people. Therefore, only organizations that are successfully able to meet these needs by developing new products are able to sustain their position in the market. (Khade, Alan S,2003) Presently, there are so many companies in a single industry that it has become difficult to compete. Competing on services and price is not enough in current competitive environment. Development of a new product or adding advanced features to the existing product has become important to gain competitive advantage. An appropriate example of this is Pepsi Co. Pepsi Co. adopted this strategy and successfully achieved higher market share, increased profitability and became number 1 company in beverages industry world-wide. The same strategy was also adopted by Apple as it continuously came up with new products like iPod, OS X, iPhone etc. It was very important for Apple to adopt this strategy as old products become obsolete in no time. Therefore, in order to compete in this fast growing era, product development plays an essential part as it did for some above mentioned brands. Arun Kottolli believes that product development is the only approach towards gaining competitive advantage. He further stated, that needs and requirements of every individual changes with time. Therefore, to retain your existing customers and at the same time attract new customers it is important to adapt these changes and design products that suit their requirements. For example, if General Motors which is one of the most renowned automobile company today, kept producing the same model or design of vehicles as they did in the year 2003, then by now it would have been out of this industry. General Motors not only maintains its market share but also increases its growth further with every new product it produces. In contrast, Motorola lost its market share with a huge margin as other mobile companies came up with new models, as it kept on producing the same analog phones and did not innovate. It has been seen that smaller players in the market are not able to cope up with the rising demand and changing needs of the customer. Such companies focus more on improving their operating competence and do not modify their existing products, which eventually leads to failure. In an industry where there are few competitors, it is easy to find history, pricing strategy and behavior of another company. This can help the competitor to come up with a better product even before you introduce your product in the market. In such cases, you should come up with a product which is so advanced and superior that it gets difficult for the competitor to match up. This strategy is known as “leapfrogging” and Apple Company is an appropriate example that adopted this strategy and was successful. Organizations can also increase barriers to entry by adopting product development strategy. Brands like Intel, Toyota and Honda are a perfect example of it as they continuously kept on introducing new products. Their purpose was to, not let the new entrants enter the market and give a tough time to their existing competitors. (Arun Kottolli, 2008) With new product development essential for market success and CEOs continuing to rate product development as essential for their company’s success, not every producer is lucky enough to launch a product which is successful in the market. Few alarming facts come in to note An astounding 77 percent of development projects hit their profit targets in top performing firms. In poor performers, only one project in four achieves its profit targets. • Top performers have an admirable 79.5 percent commercial success rate for development projects – double the success rate of poorer performers. • Top performers achieve 38 percent of total sales from new products launched in the previous three years – four times that of poor performers. (Cooper and Edgett) So why is it that some companies have mastered the art of product development while others are almost always faced with failure? Cooper and Kleinschmidt firmly believe that in order for a product to have market success it is necessary for new product to be linked with business strategy. They have in their study used ten metrics in order to gauge the success of the new products introduced by 161 businesses in various industries. Failure of a product can many times be identified by the fact that there is very little assessment or review before the product is passed on from the idea to the development phase. It is because of this, many firms have put in product review stages in their new product development process. For instance SC Johnsons Wax has two such stages in their five stage product development process while some companies with the notable example of Hewlett-Packard, have placed major importance in their Phase-Review Process before formal product development takes place. The main aim of these review stages is to do all the necessary market research before product development. It is in these stages that market potential, consumer requirements, all technical assessment, competitive analysis and most importantly profitability analysis is conducted. In their study Cooper and Kleinschmidt observed that many business that forgo these important review steps discovered too late in the product development process that the product might not experience the commercial success the company targeted for: like the market was not as big as anticipated or that the manufacturing cost too high to make the product economically feasible to go into production. Such discoveries causes the project to be abandoned in the middle and the company faces loss of money as the turnover expected on the investment will not be gained anymore. Moreover, it is also important for business to set goals for their new product development team for instance 3M set goals like “30 percent of our division’s sales will come from new products introduced over the next three years”. Such goals motivate the team to have a common purpose. Cooper and Kleinschmidt in their study also found that research and development spending was the single strongest driver of new product development. Thus, in order for business to be able to launch successful new products, it is necessary for them to be willing to spend vast amount of resources on it. The research and development expenditure by the 161 companies taken by Cooper and Kleinschmidt is reasonably high around 7.5 percent of sales. Though it is important to note, that the study found no relationship between research and development spending and the profitability of the new product thus in order for commercial success of the product the whole product development process from idea to launch must be carefully followed. Alan M.Zuckerman in his articles looks how the process of good product development has changed the once not so profitable heath service sector into a profitable one. This has only happened when the management running the hospitals was able to identify the products and expand on those which were profitable rather than every department. Zuckerman in his article identifies four key characteristic of good product development. First and the foremost understand what product is and whether there is a market for it. A good example of this was by Pfizer when they introduced Prozac in to the market. It is also necessary for any good product development to have continuous research rather than sporadic research. Continuous research would enable the firm to be always either be technologically advanced or at par with the competitors. More importantly company must not only incorporate technology which is available to them from external source but also must strive to do internal research. Firms should also look into advances or improving upon an already existing product rather than always look to introduce new products. This would allow firms to launch something new in the market while not incurring that high research and development cost. Moreover, firms should invent products that can be easily linked with their already existing products. A good example of this is Microsoft which allows the users of its Windows operating system to easily use its other software like Office Word no matter which version. Lastly, any product development must be linked with business strategy to be effective in the market. As product development is not the aim of the business rather making profits is. Conclusion To sum it all, an appropriate way of attaining higher market share is to replace your current product with an advanced and newer product. New products should be introduced keeping in mind the changing needs of your customer and similar products produced by your competitors. Bibliography: Abraham M (2003) An incremental approach to new product development [Online]. 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