Why do companies introduce new products?
The simple answer is to generate more revenue. But that’s not it. Because if companies won’t introduce new products, someone else, the competitors would do it and would take away the market share and the company would lose revenue. Now Let’s go a bit deeper also into finding more reasons.
So, customers’ needs keep changing, take cars for example – in the last 20 years, customers’ requirements have evolved significantly. Even a basic car today should have an infotainment system, automatic transmission, keyless ignition, and many other features which were once considered to be premium features, today most of those features have become essential, hence companies need to keep introducing new products to stay relevant in the market.
Another important reason is that technology is upgrading today at a much faster pace. Take the memory capacity, storage size or the camera of your smartphone. Due to this frequent & fast upgrade, the product life cycle is becoming shorter. Hence companies are forced to bring newer products faster. Another reason is those good companies who spend a lot of effort & money in their research & development. Those companies keep bringing newer products into the market to showcase their innovation, and strength & to establish their dominance in the market. An example would be Apple which keeps launching newer products like the apple watch or air pods or Nike would be launching a new shoe every year for runners to showcase their technology and R&D efforts.
Also, big companies that have multiple product lines or business lines – introduce newer products or platforms to diversify their revenue. Think about Alphabet (parent company of Google) as an example. Let’s say magically if Google Search is no more, YouTube still makes a lot of money for the company.
How do companies introduce or add new products?
- Product line extension
A product line extension is when a company uses the same product or brand name for a new item in the same product category. For example, when a soft drink company offers a new flavour of the soda. Or when a toothpaste company has a product that focuses on whitening teeth and then provides a toothpaste that reduces tooth sensitivity. Another example could be 3 different sizes of iPad because there is segmented demand for three sizes, so Apple is going to make sure the demand is met. As opposed to, creating just one size, and having a percentage of people not buy it because the size isn’t right for them.
2. Brand extension
Brand extension is when a brand or company known for selling one type of product starts selling a different type of product or a new product from a different category. For example, Saffola is a brand name of edible oil from Marico, under the same brand name, the company had also launched Oats, Protein-Shake, Honey, & multiple Immunity boosting products. Similarly, Dettol which started as an Antiseptic liquid extended the Dettol brand name to many other product categories and launched new products like Dettol Soap, Dettol liquid handwash, Dettol hand sanitiser, and Dettol Laundry Sanitizer.
An important point to note is that companies try to keep the underlying brand messaging uniform while creating brand extensions, like Saffola’s is known as a Healthcare brand bringing related products and services, similar Dettol as a brand is also known for protecting health for over 80 years, hence all their products would try to convey the same message.
Both product line extension and brand extension have their own advantages. Extending a product line is less risky than performing a brand extension because customers are already familiar with the existing products and are more likely to try the new product. The new product can leverage the same retail partners, supply chains, packaging, and other things that it shares with the old products. Less advertising and communication are required because of the similarity to the old and well-known products. However, with this less risk, there is a less potential reward as well. The brand is essentially competing with its old products. There is less opportunity for incremental sales because sales of the new product might come at the expense of the existing products.
The third type of new launch is when a company decides to make the existing product end of life or is planning to launch an enhanced version of the existing product. In that case, the company introduces a rollover product or replacement to address the existing demand.
How to plan the launch?
If the new product being launched is a replacement of an existing product then a product or category manager must ensure with the distributors & channel partners, else chances are customers might not want to buy the old product when the new product hits the market, and the company would need to provide discounts to sell the old one. On the other hand, if the inventory levels are lower, a company need to ensure all the existing orders of customers & partners are fulfilled before launching the new one.
Generally, in the case of B2B products where companies work with clients/customers directly, they need to inform them in advance of the planned phase-in and phase-out of the products.
However, if the launched new product is an extension of the existing product category, it is important to minimize the cannibalization of the existing product, which means that the new products should not hamper the sales of existing products in the category. Let me relate it with an example I gave in my previous video, of the backpack which we launched as a part of my category manager role at Lenovo.
So, to cater to the specific requirements of an entry-level backpack or bag we had launched a backpack at $7, before this we only had a backpack of $13 in the portfolio. While this new product was to cater to different requirements, we also ensured this product is not being utilized for the current requirement else it would have hampered the sales and might result in cannibalization of the existing product.
Whether the new product is a replacement of an existing one or a new line extension, it is always ensured that all the quality checks on that product are completed before launch. Any testing to be done or the certifications required to market the product is also ready.
Then comes the final step of planning a structured marketing promotion spread over a period, which typically begins from a teaser of the new product also called a soft launch to a planned promotion on different media as per requirement (like blogger reviews, social media, direct marketing, channel events etc.) to the final launch event of the product.
Having discussed the importance of new products in growing the company’s revenue and how to plan the launch, it is also very important to manage the product’s entire lifecycle well from launch till the product gets the end of life. A product’s life cycle has 4 stages – Introduction, Growth, Maturity and Decline.
Companies that have a good handle on all four stages can increase profitability and maximize their returns. Let’s take the ‘Introduction stage’ for example, this stage requires substantial investment in advertising and marketing, while the company might have developed many products recently but which one or two products to launch out of the many in the pipeline is a decision that is to be taken wisely. Also, if the right product is launched, during the growth stage when the demand grows, it requires less marketing efforts and costs.
Another important factor to focus on is the duration of the product till it will be kept alive. Now different products have different lifecycles.
For example smartphones today typically don’t have more than 6-9 months lifecycle from launch to end of life, likewise, a laptop might have a one-year lifecycle, because as the technology upgrades, the current products become obsolete hence companies need to introduce superior products.
In this case, ensuring the supplies of products till their lifecycle is important and announcing the upcoming products to the customer becomes critical for companies to not lose their spot or market share. Lastly, even while managing the product lifecycle the key element is collecting feedback, which helps to gather insights to improve the product. This gives companies ideas to upgrade the next version of a product.
Thoughts on Product Management 