Launching new products as brand extensions into related product categories is one means of broadening the brand meaning. Nike started as a running shoe manufacturer but now competes in the sports market with all types of athletic shoes, clothing and equipment. Armstrong World Industries moved from selling floor coverings to ceilings to total interior surface decoration. Product innovation and effective marketing programs have allowed these firms to expand their â€œmarket footprintâ€.
In an economy of rapid change, continuous innovation is necessary. Most companies rarely innovate, some innovate occasionally and a few innovate continuously. In the last category, Sony, 3M, Charles Schwab, Dell computer, Sun Microsystems, Oracle, Southwest Airlines Maytag Costco and Microsoft have been stock price gain leaders in their respective industries. These companies have created a positive attitude toward innovation and risk taking; they have regularized the innovation process; they practice teamwork; and they allow their people to experiment and even fail.
Companies that fail to develop new products are putting themselves at risk. Their existing products are vulnerable to changing customer needs and tastes, new technologies, shortened product life cycles, and increased and foreign competition. New technologies are especially threatening.
Most established companies focus on incremental innovation. Newer companies create disruptive technologies that are cheaper and more likely to alter the competitive space. Established companies can be slow to react or invest in these disruptive technologies because they threaten their investment. Then they suddenly find themselves facing formidable new competitors, and many fail. To ensure that they donâ€™t fall into this trap, incumbent firms must carefully monitor the preferences of both customers and non-customers over time and uncover evolving difficult to articulate customer needs.
Determined to develop new products to reflect changing consumer tastes and demographic, food and beverages giant PepsiCo adds more than 200 product variations to its global portfolio each year. Innovation is the key to consistent double digit earnings growth. Innovation is what consumers are looking for, particularly in the small routine things of life. PepsiCo emphasizes new flavors and healthier ingredients with existing brands. It has also successfully launched new product lines in the United States such as Sabritas chips, a $100 million success brought over from its Mexican subsidiary and Propel fitness water, which achieved similar sales success only a year after its launch.
At the same time, new product development can be quite risky. Texas Instruments lost $660 million before with drawing from the home computer business; RCA lost $500 million on its videodisc players; FedEx lost $340 million its Zap mail; DuPont lost an estimated $100 million on a synthetic leather called Corfam; and the British French Concorde aircraft never recovered its investment. Even these amounts are paltry compared to the $ 5 billion Iridium fiasco.
New products continue to fail at a disturbing rate. Recent studies out the rate at 95% in the United States ad 90% in Europe. New products can fail for many reasons: ignoring or misinterpreting market research; overestimating market size; high development costs; poor design; incorrect positioning, ineffective advertising, or wrong price; insufficient distribution support; and competitors who fight back hard.