A company can add new products through acquisition or development. The acquisition route can take three forms. The company can buy other companies, it can acquire patents from other companies, or it can buy a license or franchise from another company. Swiss food giant Nestle increased its presence in North America via its acquisition of such diverse brands as Carnation, Hills Brothers, Stoufferâ€™s, Ralston Purina, Dreyerâ€™s Ice Cream and Chef America.
The development route can take two forms. The company can develop new products in its own laboratories, or it can contract with independent researchers or new product development firms to develop specific new products. We can identify six categories of new products:
1.New-to-the world product â€“ New products that create an entirely new market.
2.New product lines â€“ New product that allows a company to enter an established market for the first time.
3.Additions to existing product lines â€“ New products that supplement established product line (package sizes, flavors, and so on).
4.Improvements and revisions of existing products â€“ New products that provide improved performance or greater perceived value and replace existing products.
5.Repositioning â€“ Existing products that are targeted to new markets or market segments.
6.Cost reductions — New product that provides similar performance at lower cost.
Less than 10% of all new products are truly innovative and new to the world. These products involve the greatest cost and risk because they are new to both the company and the market place W L Gore, best known for its durable Gore Tex outdoor fabric, has innovated breakthrough new products in a number of diverse areas â€“ guitar strings, dental floss, medical devices and fuel cells. It has adopted several principles to guide its new product development:
1.Work with potential customers â€“ Its thoracic graft, designed to combat heart diseases, was developed in close coloration with physicians.
2.Let employees choose projects: Few actual product leaders and team are appointed. Gore likes to nurture â€œpassionate championsâ€ who convince others a project is worth their time and commitment. The development of the fuel cell rallied over 100 of the companyâ€™s 6,000 research associates.
3.Give employees â€œdabbleâ€ time: All research associates spend 10% of their work hours developing their own ideas. Promising ideas are pushed forward and judged according to a â€œReal, Win, worthâ€ exercise. Is the opportunity real? Can we win? Can we make money?
4.Know when to let go: Sometimes dead ends in one spark an innovation in another. Elixir acoustic guitar strings were a result of a failed venture into bike cables. Even successful ventures may have to move on. Glide shred resistant dental floss was sold to Procter & Gamble because Gore Tex knew that retailers would want to deal with a company selling a whole family of health care products.
Most new product activity is devoted to improving existing products. At Sony, over 80% of new product activity is actually devoted to modifying and improving existing products. Gillette frequently updates its razor systems: It launched the new M3Power wet shaver for men and Venus Divine for women in 2004. In many categories, it is becoming increasingly difficult to identify blockbuster products that will transform a market; but continuous innovation to better satisfy consumer needs can force competitors to play catch up.