Product innovation is fundamental to business growth, as it allows companies to stay competitive, meet changing customer demands, and explore new markets. The continuity of any business depends on its ability to remain in the market and face competition through product innovation. However, can you imagine how many products are launched each year? And how many succeed?
In the U.S., as in every country, tens of thousands of products are launched annually, but very few survive the competition in the marketplace. According to Clayton Christensen, a professor at Harvard Business School, 95% of new products launched each year in the U.S. fail.
Statistics show us how tough market competition can be and how aggressive it can become. In this context, companies have realized the need to invest in developing new products or improving existing ones.
An important tool for business success is product innovation, whether these are goods or services. Various studies have shown that a company’s innovation capacity positively impacts its competitiveness (Chatterjee et al., 2022). However, it’s not enough for a product to be innovative; the organization must also be innovative. In this regard, Peter Drucker suggests in his book Innovation and Entrepreneurship that product innovation and entrepreneurship are interconnected and must be used together for a business to succeed.
On the other hand, Sorescu (2017) points out that companies like Amazon, Google, Facebook, and Netflix reached billions of dollars in capitalization not only through product innovation but also by entering the market or creating new ones using an innovative business model. In other words, product innovation must go hand in hand with an innovative business model.
In this article, we will explain some definitions, types, and processes of product innovation and provide examples of innovative products. At the end, you will find a list of references to help you deepen your knowledge and enhance your product innovation processes.
What is Product Innovation?
Product innovation is the process of creating new products or improving existing ones to meet changing customer needs and outperform the competition. This process involves several activities, from identifying new opportunities to developing and launching new products to the market.
In essence, product innovation refers to the development and introduction of new products or significant improvements to existing products. These innovations can take many forms, such as design, functionality, or features that improve usability or meet new customer needs. The meaning of product innovation goes beyond mere novelty; it’s about offering something that significantly enhances value for the consumer.
The Oslo Manual by OECD/Eurostat (2018) states that “Product innovation is a new or improved good or service that differs significantly from the company’s previous goods or services and has been introduced to the market.”
The same document highlights that product innovations (goods or services) must provide significant improvements in one or more performance characteristics. This includes:
- New functions, or improvements to existing functions, or increased utility for the user.
- Relevant functionality features: quality, technical specifications, durability, economic efficiency during use, convenience, usability, etc.
- New designs or improvements in design features that can influence the appearance of a new product and consequently increase its utility for the user.
- Use of new knowledge or technologies, or reliance on new uses or combinations of existing knowledge or technologies.
In other words, you don’t need to introduce a new product every year; you can also focus on improving the characteristics of the products you already sell.
Additionally, Stoneman et al. (2018) emphasize that product innovation can be something new to the world (global level), new to a market (local level), or new to an individual supplier (company level).
What should be clear is that product innovation represents a new way of solving a problem for a large number of consumers; in short, it should answer the question, “How can we create value for customers?”
Why is Product Innovation Important?
Today, product innovation is more important than ever. Markets are increasingly global and competitive, and customers have access to a wide variety of products and services. To succeed in this environment, companies need to offer new and innovative products that meet customer needs and expectations.
The product (goods or services) is the foundation of a company and its direct link to consumers (Reguia, 2014); for this reason, you must be very careful with the development of goods or services.
Product innovation is important because it can help you create new spaces in a competitive market; by identifying gaps or unmet needs, you can carve out a new market space.
Product innovation is also important for economic growth. Companies that innovate create new jobs, generate wealth, and help drive the economy. If your product allows you to differentiate yourself from other companies, you will have the opportunity to grow, expand the business, and generate more profits.
Moreover, having innovative products also helps position your brand relative to your competitors. The most notable example is the iPhone in the mobile phone market.
But how can you measure the contribution of product innovation to your company’s profitability? To determine whether your innovation efforts are yielding results, Reguia (2014) indicates that this can be measured by sales and profitability of new goods/services, changes in market share, etc.
Benefits of Product Innovation
- Increased sales and market share: By offering new and innovative products, companies can attract new customers and retain existing ones.
- Improved profitability: Innovative products can have higher profit margins than traditional products.
- Greater competitive advantage: Product innovation can help companies differentiate from competitors and create a barrier to entry for new competitors.
- Improved company image: Companies that innovate are seen as leaders in their industry and attract top talent.
Types of Product Innovation
Understanding the types of product innovation is essential to leveraging its full potential. Broadly speaking, product innovations can be classified as:
- Incremental innovations: These involve small but continuous improvements to existing products. The goal is to enhance functionality, quality, or ease of use without making radical changes.
- Radical innovations: These are revolutionary changes that can reshape the market. Radical innovations create entirely new categories or redefine how products are consumed. Examples include the smartphone revolution, which redefined the telecommunications and technology sectors.
- Disruptive innovations: This type of innovation introduces a product or technology that significantly alters how a market operates, often creating a new market in the process. Disruptive innovations may initially target a niche market but have the potential to grow exponentially.
Each type of product innovation has its place, depending on the company’s goals and the market environment. While incremental innovations maintain competitiveness, radical and disruptive innovations can open new revenue streams and redefine entire industries.
Product Innovation Process
At this point, you should be convinced of the importance of innovation, and specifically product innovation, but how do we start a product innovation process? Here are some ideas.
Artificial Intelligence for Product Innovation
It’s important to highlight that in recent years, artificial intelligence (AI) has emerged as a tool for forming hybrid innovation teams with humans for developing new products. According to Babina et al., (2024), companies that invest in AI experience greater growth in sales, employment, and market valuations; growth occurs primarily through increased product innovation.
Grech et al., (2023) propose a platform aimed at enabling brainstorming activities to regain their status as a truly challenging and inspiring activity, where participants are fully engaged in virtual reality environments supported by Artificial Intelligence.
Cooper (2024) describes that AI can be employed in product innovation in three areas:
- Idea generation and concept creation and testing;
- Building a solid business case that leads to better “front-end” investment decisions;
- Product design, engineering, development, and testing.
Starting Point of Product Innovation and Development
Product innovation typically originates from the value creation block of a business model (Sorescu, 2017), with the goal of identifying how the good or service creates value for customers. In this regard, Stoneman et al. (2018) defined five routes for product innovations: research and development (R&D), design, creative activities, imitation, and foreign direct investment. Additionally, you must consider emerging technologies (deep tech) in your business field so they can be part of the plan you are going to develop.
One aspect that should be clear before starting a product innovation process is the possibility of collaborating with different external actors, such as suppliers, customers, competitors, and research organizations—also known as open innovation. In this regard, Chatterjee et al., (2022) report that knowledge exchange between subsidiaries of a multinational is important for product and process innovation.
Najafi et al (2018) report that their research allowed them to conclude that the level of collaboration with different partners can increase a company’s innovation capabilities, but only if the managers of these companies have developed the ability to acquire external knowledge.
The product innovation process may vary depending on the company and industry, but it generally involves the following stages:
- Idea Generation: The process begins with brainstorming and research to generate product innovation ideas. These ideas can stem from customer feedback, market trends, or technological advancements.
- Concept Development: After gathering ideas, companies select the most viable concepts. These are then developed in detail, determining the main product features, design, and market fit.
- Prototyping: Once a concept is approved, the next step is to create a prototype. This is a preliminary version of the product used to test its feasibility and functionality.
- Testing and Feedback: The prototype undergoes rigorous testing, often involving focus groups or pilot customers. The goal is to identify any issues and gather feedback to refine the product. In this regard, Cheng y Sheu (2024) report that companies can leverage social media data to develop innovative and disruptive products rather than simply making minor improvements to existing ones.
- Commercialization: After successful testing, the product is ready for launch. Marketing strategies are developed to introduce the product to the market, and sales channels are prepared to meet demand.
- Post-Launch Evaluation: Even after the product launch, the innovation process continues with post-launch evaluation. This phase includes gathering data on customer satisfaction and product performance, allowing companies to make necessary adjustments.
Additionally, there are many methodologies for implementing a product innovation process. However, you should first conduct a brief “audit” of your products, and a simple tool for this is the “Innovation Ambition Matrix.”
Innovation Ambition Matrix
This tool, developed by Bansi Nagji y Geoff Tuff (2012), helps companies measure the “novelty” of their goods or services in the market and facilitates product innovation processes.
The matrix has three types of product offerings:
- Core or central: Considers small changes to existing products with forays into new markets. Efforts at this level focus on incremental innovations; for example, a new packaging, a new formulation, etc.
- Adjacent: Refers to what a company already does well but uses novel solutions to attract new customers. Adjacent innovations allow a company to leverage existing capabilities.
- Transformational: Focuses on creating new offerings to serve new markets. These are the innovations that, when successful, can bring about radical or disruptive changes, for example, iTunes and Starbucks.
Leading companies have a combination of 70% core or central offerings, 20% adjacent, and 10% transformational.
Front-end Development Methodology
In recent years, the use of the “front-end development” methodology, primarily used in software development, has spread across various industries.
The “front-end development” methodology will allow you to identify, validate, and prioritize opportunities before building or redesigning anything. In summary, you will be able to determine the needs of customers that you could address and the best way to do so.
The simplified front-end development process includes five steps:
- Gather ideas based on customer studies and research, employ methodologies such as online surveys, focus groups, in-depth interviews, etc.
- Develop product concepts that fit the needs and preferences of consumers. Additionally, conduct a competitive analysis to ensure that the concepts are within the competitive landscape.
- Validate and prioritize concepts through concept testing as a way to compare and measure your progress against market leaders.
- Assess the market by using a customer segmentation process to form an image of your target customer and determine the concepts or features that could be most profitable.
- Refine the concept by developing a prototype to put it through a formal product development process and incorporate user testing to continue improving.
Is Your Product Innovative?
Finally, to consider if your product is innovative, you must be able to answer yes to the following three questions posed by Ghelber (2019):
- Is your product relevant to a significant number of consumers? This especially applies to products that solve problems that have not been solved before.
- Is your product better than that of your competitors? If so, what are the improvements in design, technology, usability, etc.?
- Is the innovation or uniqueness of your product obvious? Is it easy to explain to consumers why your product is necessary or better than its predecessors or competitors? Even when the answer might not always be an easy “yes,” this point is really important for your promotional campaign when you launch the product.
Steps to Create an Innovative Product
In this section of the article, we will answer the question: How to create an innovative product? or How to implement product innovation processes in your company?
Many methodologies can guide you in the creation, development, or updating of an innovative product. In this regard, Lean principles are important when it comes to updating a product or service; however, what process should we implement when we want to develop a completely new product?
To implement a product innovation process, we must take a general look at the expectations of current or potential customers, technological trends, or possible changes in habits and customs.
Almaazmi et al., (2021) and Zheng et al., (2021) report, for example, that digital technologies, such as blockchain, represent significant changes in culture, people, business processes, the business model, and in how companies innovate. In this sense, if your company is in the process of digitization, you must take into account how this will impact product innovation within your company.
On the other hand, Zhang et al., (2021) and Goldberg and Abrahams (2022) describe the importance of customer reviews or opinions about products posted online as an important source of ideas to implement product innovation processes to obtain products or services that meet the needs and/or expectations of customers.
However, if you want to establish methodologies to create an innovative product, Gonzáles (2021) establishes the following steps:
- Identify the needs and niches in the market.
- Select a group of ideas.
- Evaluate each idea.
- Determine the potential of each idea based on its target audience.
- Identify and study the competition.
- Prototyping and development.
- Marketing plan.
- Product launch.
These steps will lead you to design an innovative product; however, like any product innovation process, you often have to repeat this cycle until you find innovative products that allow you to become competitive in the market.
On the other hand, in recent years, principles of circular economy have been implemented in the development of innovative products. In this regard, Tan (2023) describes the LASER framework for developing green product innovation processes focused on the circular economy; while Zhang et al., (2024) propose an integrated path for product innovation incorporating relevant innovation theories and methodologies, covering the process, theory, and methods of innovation.
Finally, several frameworks can help companies implement an effective product innovation process. Some of the most popular frameworks are:
- Design Thinking: Focuses on understanding customer needs and developing creative solutions to meet those needs.
- Lean Startup: Based on rapid prototyping and obtaining customer feedback to iteratively improve products.
- Agile Development: Based on an incremental and collaborative approach to software development.
Examples of Product Innovation
There are many examples of product innovation; at one point, mobile phones, computers, tablets, and even bicycles, have been new goods representing product innovations.
Insurance, supermarkets, credit cards, among others, have been new services representing global innovations.
Perhaps the main example in the world of product innovation is Apple Inc., which revolutionized the mobile phone market with the introduction of the iPhone.
On the other hand, Google is one of the most prominent examples of innovation in computing, offering a better online experience for consumers. Additionally, this company created Adwords which changed the world of advertising.
Below is a list of innovative products sold on Amazon:
- AeroGarden Harvest Indoor Hydroponic: This product is designed for people living in apartments without space for gardens. With AeroGarden, you can grow your own vegetables indoors, as it features a broad-spectrum LED light panel to maximize photosynthesis, resulting in faster plant growth.
- MPOWERD Luci Base: I’m sure that when planning a camping trip, one of your main concerns has been how to charge your mobile phone. The solution to your problems is MPOWERD Luci Base, as it not only provides a lamp but, more importantly, allows you to charge your mobile phone using solar energy.
- Tesla electric cars: By introducing fully electric vehicles with superior performance and design, Tesla revolutionized the automotive industry. Their focus on innovation is not limited to the product but extends to the production process, making it more sustainable and cost-efficient.
- Netflix streaming service: Netflix, originally a DVD rental company, transformed into a global leader in streaming services through innovation. It not only innovated in terms of content distribution but also pioneered the creation of original content, setting a new standard for the entertainment industry.
- Dyson bagless vacuum cleaner: Dyson’s innovation in vacuum technology revolutionized a mature market by eliminating the need for disposable vacuum bags, improving suction, and enhancing the user experience.
Other innovative products being launched in the market include lab-grown or imitation fish meat like those offered by Finless Food, the DnaNudge smart bracelet that recommends what to eat based on your DNA, the NaLamKi project developing smart agriculture, among others.
Disadvantages of Product Innovation
Even though innovating your products should be a permanent goal for your business to remain competitive in the market, there are also some disadvantages:
- High costs and high risk of failure: when a company tries to innovate its products, it invests a lot of capital and time, requiring an experimentation process. If this process is not carried out with the necessary rigor, the developed product could become a failure.
- If the company opts for open innovation, it must be willing to share its “secrets” with other actors in the value chain.
Conclusion
Product innovation is important for the competitiveness and survival (sorry to be dramatic but it’s the truth) of the company in its current markets or if it wishes to enter new ones.
Companies must include continuous innovation of their products as an important part of their development strategy within their growth plans. In this sense, they must have technical teams with competencies in project management, agile methodologies, and innovation.
If you are looking to promote product innovation in the food industry, it is important to note that Nowvaratkoolchai et al. (2022) describe the six key success factors for product innovation management for food manufacturing, including top management, organizational structure and culture, resources (human, financial, technological), process management, collaboration, and market and environmental orientation.
Finally, if you don’t want your products to be part of the sad failure statistics, you must promote product innovation processes based on the value your innovative products/services bring to your customers.
Bibliographic references
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