Considering the fast change in customer taste since the society is always making progress and individuals pursue more advanced technique and more convenient life styles, every company should try to innovate new products which satisfy customers’ need. However, only a few new products can be successful, and research shows that 90% of new products will fail after they enter the market (Kotler, 2008).
Several reasons contribute to this failure. Therefore, analyzing risks about new products and managing uncertainty seems to be important.Also, there are several steps which help companies managing new products and launch them into market successfully. In the rapidly changing business world, companies face a variety of consumers’ requirement such as high competition from opponents as well as technological innovation. In order to adapt to the fast changing environment, new product development seems to be fundamental. However, it is not easy to make new products successful since most of them may fail in a short time.
Several reasons can demonstrate this phenomenon.For instance, some products may not be designed properly (Kotler, 2008), while some might enter the market at a wrong time and others may not market well and so on (Kraushar, 1970). Thus, it is essential for companies to manage new products properly. Companies would reduce risks of developing new products if they were able to manage them systematically. This project will firstly define the term ‘new product’ and then discuss the importance of new product development. Following this, it will focus on the risks of developing new products and risk management.
Next, managing new products will be discussed. Then, it will illustrate marketing new products. Finally, it will conclude that new products could be launch successful if companies managing them well. Definition of a new product Before discussing risks of new product development, it is necessary to define the term ‘new product’.
A new product could be an innovation of an existing product or an analogue of competitive rivals. It also could be a product which has existed in other countries but not in home countries.Of course it ould be an absolutely new product which can not be found from the market (Kraushar, 1970). The importance of developing a new product ‘Innovation is at the heart of many companies’ activities’ (Trott, 2008, P.
4). Companies which want to survive in today’s market should innovate since innovation means improvement of existing products or developing a new product which is equipped with better quality. According to Business Week 2006, the top three most innovative companies are Apple, Google, 3M which are also very successful corporations worldwide.A new product has many advantages for companies. Firstly, it may bring about great value to a company.
For example, In 2007, Apple announced that they would launch a new touch-screen mobile phone (iphone) which was invented by ipod mobile phone (Trott, 2008). This kind of mobile phone was welcomed by customers after its launch since it was equipped with a powerful system which could compatible with a good many programs and functions. Three years later, after producing several models, Apple’s iphone has become prevalent and it also greatly improved Apple Company’s revenue (West &Mace, 2010).Secondly, new products can improve competitive power for companies because new products might have better quality and could reach customers’ need.
For example, when digital cameras appeared in the market, film cartridges were gradually replaced by them. Companies such as Kodak and Fuji changed their targets into digital camera immediately and this wise response gave Kodak and Fuji more competitive advantage since they moved faster than their competitors. Therefore, they got first-move advantage and much time to innovate and seize market share.Now Kodak and Fuji are leaders in digital camera market (Troff, 2008).
From the above examples, it can be concluded that innovation is vital for companies’ strength and survival. If Apple Company had not invented iphone, it may not have earned as much profit as today. If Kodak and Fuji had insisted on continuing their traditional film cartridge production, they may have disappeared from the technical market. Risk-analyzing of developing a new product As discussed above, innovation could give companies many advantages. However, innovation is always followed by high risks.
Research found that nearly 90 percent of new products fail in a short time. For instance, about 70 to 90 percent of new cosmetics fail within a year. Thus, finding causes of this failure seems to be of importance. There are several reasons to illustrate new product failure. Firstly, the new product may not be launched to the market at a proper time. For instance, several years ago, Nestle tried to put instant tea into the UK market, but people did not buy it since the British had got used to use tea bags, and they could not accept instant tea at that time (Peter, 1970).
But today, instant tea is prevalent in the world. Secondly, new products may be not good enough to satisfy people’s requirements. Take electronic books as an example, they are not favored by people as manufacturers expected. The reason is that they do not bring as much convenience as people expected. This may be E-books need a digital display to read but some people like reading books (such as fictions) on beds without digital display as the light on the screen may not create a visional world.
Also others may choose to use laptops since they may be more convenient than e-books.Lastly, bad advertising and promotion also could cause new products unsuccessful (Kotler, 2008). Thus, companies should try to reduce risks for new product development by carefully testing the market. Risk-management of a new product In order to lower risks of a new product development, risk management should be taken into consideration.
To begin with, companies should determine whether or not to reform a new product since innovation is accompanied by much uncertainty (Baxter, 1995). In many cases, if the present product did not have drawbacks, it might be unnecessary to innovate.Take New Coke as an example. Coca-Cola Company was always popular with its coke. But in 1985, Coca-Cola Company tried to change the taste of original coke.
They altered the ingredients of original coke and put the new one on the market without doing market survey about whether customers liked it or not. Unfortunately, when the new coke appeared to the market, it completely failed since individuals preferred the old one (Dubow &Childs, 1998). Thus, it can be seen that companies should be cautions about innovation especially for products which are welcomed by people presently.Another aspect of risk management is that when companies decide to innovate products, they should take any potential proposals into consideration.
Therefore, they could choose the comparatively best proposal (Baxter, 1995). For example, Eletrolux is a famous household appliances company worldwide. When they decided to innovate or improve their products, they often hold meetings and call employees who come from different departments together in order to encourage their staff to think new ideas as more as possible. This method is very effective and helps Elecrolux to get a competitive advantage in the appliances market (Kotler, 2008).Hence, it is evident that generating good ideas help companies to make new products.
The last phase of risk management is designing a new product and producing it. This phase is less risky than the above two steps since it is based on the above two phases. Designing and producing new products is a comparatively easy work since after did much research on the market, companies have know what customers want and they will design and produce the expected products. In other words, the former two steps are more essential, they decide whether the new product is welcomed or not (Baxter, 1995).These three steps may help companies to reduce risks of new product development, and should be addressed thoroughly before launch new products.
New-product management After discussing risk management, new-product management is also improtant. This process requires companies to assign managers to control. In addition, there are three other points which should be addressed. In the first place, new products must satisfy customer need. In other words, they should be ‘customer centered’ (Kotler, 2008, P.
566). Many companies pay much attention to technical innovation but ignore customer requirements.Also, new products should solve customers’ present problems. In order to know customers’ requirements, companies should do market research. For example, P&G insists on observation of costumers behaviors. Once they have prepared to produce a new detergent, they go to streets and stores to ask customers’ desire about it.
They also spend a lot of time watching customers cleaning their bathrooms in order to produce a new detergent which could meet different customers needs. By knowing different customers’ expectation, P&G can produce a good product by responding to their observations.In the second place, managing new products require a specific team to work together, it is a ‘cross-functional’ team which consists of different departments, such as designing, manufacturing and marketing (Kotler, 2008, P. 567). These people will specialize in new products management and ensure this process works effectively.
In the third place, managing new products is a systematic process. Companies should encourage staff and distributors to think about new ideas and reward those who contribute to a new product development. After this process, many good ideas may be produced since many people are involved in it (Koter, 2008).Managing new products development is a vital and complex procedure, it might determine whether this product would successful launch to the market or not. Marketing a new product When a new product is developed, the next important step is marketing it.
This is significant to the success of a new product. Marketing includes several elements such as price, advertising and sales promotion. These elements will be discussed in the following section. Firstly, deciding a new product price requires many skills. The price for a new product should be accepted by customer, and it also should guarantee profit for companies after tax.
Meanwhile, competitors’ price in the market should be considered. If the price is accepted by customers but is higher than competitive products, it would cause drop of sales volume in the long term. But a low price is also inadvisable, although it may get a competitive advantage in the short time, it may not have enough profit to cover marketing cost in the future. Thus, before deciding a new product price, researching market price is needed. For example, companies should survey customers expected price besides comparing similar products price (Kraushar, 1970).Secondly, sales promotion is considered as an important ‘performance diver’.
It is effective and it will increase sales volumes in a short time. Sales promotion includes coupons, contests, free gifts and so on. It stimulates customers to purchase products now since it gives consumers more value (Koen& Jorge 2004). However, promotion may simply bring short term effects for a new product.
If companies want to promote a new product in the future, they need to alter the advertising. Advertising plays a vital role in informing, persuading and reminding people.It contributes to the increase of a new product sales volume greatly since more and more consumers are becoming knowing it from the advertising (Barroso, 2008). For a new product, ‘informative advertising’ (Kotler, 2008, P. 565) is widely used.
It conveys to customer important information of the new product. For example, when Apple iphone was launched in 2007, its advertisement showed that this type of mobile phone had an advanced system which had various functions to meet different individuals demand. This advertisement made iphone become famous immediately and also made iphone very successful (West &Mace, 2010).Besides ‘informative advertising’, a new product need to invest much money on advertising since it needs to remind customers’ awareness (Kotler, 2008). As discussed above, it is possible to conclude that marketing a new product is significant since it tells consumers important information about the new product and make people know it and then they may purchase it. Conclusion Innovation promotes progress for companies.
In today’s free market, competition is becoming more tensely. A company which wants to survive should develop new products since people change their tastes more frequently in the fast changing world.Moreover, companies should provide various kinds of products to satisfy different individuals’ taste (Baxter, 1995). However, new product development also has high risks because companies may invest large funds but they may not get the expected return (Kotler, 2008). Today’s market has many uncertainties as individuals tastes are changing.
Thus, companies should be careful when they introduce a new product to the market. Every decision might influence whether a new product successful or not. Fortunately, there are several steps to avoid or reduce risks. Therefore, companies could follow those steps to reduce risks to a lower degree.
