Product Development Strategy

Product development is one of the four alternative growth strategies in the Ansoff Matrix. This growth strategy requires changes in business operations, including a research and development (R&D) function that is needed to introduce new products to your existing customer base.

Ansoff matrix product development strategy

As part of a successful product development strategy your role will require you to have a greater appreciation of a new emphasis placed on marketing.

This would result in you supplying data for and assessing the implications of change in the following key areas:

Research and development
You may find yourself having to investigate and assess the use of new technologies, processes, and materials that would be needed to pursue this strategy.

In the cell phone market, for example, phone models are being replaced every six months or so. Your organization may find that the lifespan of its products are longer, but few can ignore the necessity of continuous R&D.

Assessing customer needs
This is something that can be done by the marketing department in the form of customer questionnaires and user groups. However, customer needs can also be become apparent to people who are in customer-facing roles, as they often are the first to hear about problems or concerns with the product or service.

If you are managing a team in a customer-facing role you will have the opportunity to gather data that may initially appear negative but which can offer your organization the opportunity to meet customers' needs more fully. Understanding what a customer's real needs are and how these can be interpreted in product development is essential to success when using this strategy.

For example, complaints about oil spilling over the customer's car engine when having to replace lost oil led to the addition of an integral funnel being added to engine oil packaging.

Brand extension
This is a common method of launching a new product by using an existing brand name on a new product in a different category. A company using brand extension hopes to leverage its existing customer base and brand loyalty. However, this is a high-risk strategy as success is impossible to predict and if a brand extension is unsuccessful, it can harm the parent brand. Common sense would suggest that for brand extension to be successful there should be some logical association between the original product and the new one, but there have been many exceptions to this.

Ansoff matrix and brand extension

It is extremely difficult to predict what will work and what will not, and even with the benefit of hindsight it is sometimes hard to see why some attempts at brand extension succeed whilst others fail.

For example:
A well-known success is the launch of a clothing range by Caterpillar, a company that makes earth-moving equipment. This brand extension is totally unrelated to its main business.

A well-known failure is that of the car manufacturer Volvo, whose launch of its 850 GLT sports sedan was a high-profile failure. This seemed on the surface to be a logical brand extension, but it did not work for Volvo because the public could not be persuaded to buy a sports car from a manufacturer whose principal brand value is safety.

Whatever course of action is decided upon it must not create confusion amongst your customers. It must also avoid having a detrimental effect on your current market share.

Different approaches to brand extension

There are three broad approaches to new product development:

1. The new product is closely associated with current products.
2. The new product matches current customers' purchasing habits.
3. The new product reinvents or refreshes the existing product.

Within the fast moving consumer goods (FMCGs) market the majority of product development follows the first approach of creating new products that are easily and closely associated with the existing product. These new products usually have strong brand awareness within the market and use this as their main vehicle to gain visibility in this highly competitive market.

For example:
Mars is well known for its famous Mars snack bar. Its brand extension remained in the snack arena and started with different sizes, such as bite size and king size. Then it created a branded ice cream before moving into beverages.

Kit Kat's product development has been similar to that of Mars, but it has tried offering customers different flavors as part of this strategy. This has met with varying degrees of success. The United Kingdom has shown little preference for the new flavors, whereas in Japan flavors such as Wasabi, pumpkin, and toasted soy flour have become very popular.

Kit Kat's variable success with creating new flavors for their chocolate bars reflects how different cultural tastes can influence success or failure when using this strategy. If your organization operates internationally then part of your research and development should take account of cultural differences.

The second brand extension approach requires your organization to have a thorough knowledge of the purchasing habits of your existing customers. Using this expertise you would then develop your products in such a way that they match these habits.

You may even exploit your organization's or your brand's image and reputation to achieve this by promoting and mirroring your existing brand image and its purchasing habits onto your new product.

For example:
Marks & Spencer used their image of quality to expand their product range into food, encouraging their existing customers to buy from them rather than a supermarket. They have also extended their brand into financial services.

Virgin exploited their image of quality and offering something more exciting to persuade teenagers and young adults who bought music from them to buy soft drinks (Virgin cola), travel with them, and later to use their banking services and other financial products.

The third approach to brand extension is to continuously offer a refreshed or revamped product. This new product must convert your competitor's customers rather than simply cannibalizing your own sales. You want to avoid diverting your existing sales to the new product as this will simply maintain revenues rather than increase your market share.

Razors, washing detergent, and cars are all examples of products that are continually 'refreshed' in this way, especially to stay distinct from the competition and gain market share.

For example:
The washing detergents market has seen extensive product development. Companies started offering just one type of washing powder; this then progressed to one for whites and another for colors, then to liquid versions, and now to tabs or pouches.

The consumer will buy a variety of these products to satisfy the different washing requirements of their clothes. This contrasts with previous generations who just used one powder to wash everything!

Each of these product development approaches involves investment and an element of risk. One key aspect of this strategy is that you as a manager are likely to have to develop new skills and specializations within your team or department to meet these new requirements.

These new skills, especially in the initial stages, could be met by using outside skills and resources to control the cost and risk of such a venture. Many organizations outsource this aspect of product development and simply add their name to the packaging.

Product development, especially brand extension, is a popular strategy because it is more easily accomplished within the organization than creating totally new products.

Key Points

  • A product development strategy involves developing new products or services for your existing markets.
  • This strategy requires continuous research & development as well as the ongoing assessment of customer needs.
  • There are three broad approaches: the new product is closely associated with current products; it matches current customers' purchasing habits; or it reinvents or refreshes the existing product.
  • Many organizations outsource product development by simply buying in an existing product from another manufacturer and putting their own name on the packaging.
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You may also be interested in: Introduction to the Ansoff Matrix, Market Penetration Strategy, Market Development Strategy, Product Development Strategy and Diversification Strategy.

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