January 10th, 2018
New Product Strategies and Type I and II Errors
Developing new products is a continuous process that helps an entity sustain or increase its sales. Since customers’ preferences change over time, new products help an entity to meet such changing preferences, thus prevent the entity from losing out to competitors. Accordingly, an entity must assess its market continuously to identify the changes in customer tastes that necessitate new product development. Cravens, Piercy and Prentice for instance observe that trends reflected in changes in “life styles, population shifts and other demographics … forecast critical transitions in consumer markets”, transitions that affect success of existing products (374). Such changes require entities to institute market-sensing processes that enable them to identify the trends and respond appropriately and timely. In this section, this paper discusses strategies that entities use to develop new products and the factors that determine the choice of such strategies.
In an attempt to satisfy changing-customer needs or meet the needs of a new market, a company can introduce new products in a variety of ways. For instance, an entity can come up with entirely new products that seek to capture a new market or introduce new product lines via products that enable it to gain entry to an existing market to which it was not selling its existing products (Kotler 162; Rogers, Lambert and Knemeyer 45). In the latter case, an example would be a manufacturer of sports apparel entering the market for other types of clothing. Additionally, an entity’s new products could arise from additions it makes to existing product lines; such additions allow the entity to diversify its offerings in the market it serves (Kotler 162; Rogers, Lambert and Knemeyer 45). For instance, a sports-equipment manufacturer may make additions to ones product lines by increasing the range of sports equipment that one manufactures. In this strategy, the manufacturer would thus benefit from existing distribution channels to introduce the additions to the existing product lines. Other types of new products include improvements of existing products to achieve aspects such as improved performance and reduced costs and targeting existing products to a different market (Kotler 162; Rogers, Lambert and Knemeyer 45). For instance, improvements in products, by adopting technologies that reduce the cost of production, may help an entity that focuses on a low-cost strategy, to maintain its leadership in the market (Smith 125). Such a strategy of product development is for instance notable in the software industry whenever a manufacturer upgrades the features of a program to support emerging technologies or provide extended functionalities.
Such types of new products differ in the cost and risk involved with the entirely new-to-the-market product posing the highest risk and incurring the greatest cost since the product is not only new to the market, but also to the entity that is producing it. Accordingly, the entity might need to invest in such other aspects as technology and human resource to ensure the product is of the right quality thus increasing its costs. Additional costs for new-to-the-market products also arise with substantial marketing costs that the entity will incur to familiarize the product in the market thus generate sales that justify the investment on the product development process (Norling 6). Entities providing such new-to-market products are thus likely to be market pioneers who have adequate resources to spend on intensive research and development and, later, on market-introduction of the new product (Robinson and Chiang 862). Due to such constraints in developing entirely new-to-the-market products, most entities’ product development activities involve making improvements and extensions to existing products (Kotler 163; Robinson and Chiang 856).
Improvements and extensions to existing products also require careful evaluation and constant investment in research and development. Although already having a basis on which to advance their new product development, improvements and extensions require adequate planning that integrates suppliers’ and customers’ aspects into the development process to ensure the new product is presented to the market in time (Rogers, Lambert and Knemeyer 43-45). For instance, with respect to improvements, entities need to constantly assess customer feedback to evaluate additional features that may help address customer complaints or those that serve customer needs better (Rogers, Lambert and Knemeyer 43-45). In respect to extensions, assessment of market trends may help to identify opportunities that offer a basis for the entity to diversify its market offerings (Cravens, Piercy and Prentice 374). Accordingly, whether in improvements or extensions, an entity would be required to invest in technology and resources that build its capacity to provide the new features that customers demand. However, since the existing products have already created a platform upon which improvements can be made, new product strategies based on this approach can make gains on costs, efficiency and productivity (Muffatto 452).
The choice of new product strategy may thus be influenced by multiple factors. Primarily, the resources that a company controls that enable them to embark on major innovation projects, determine the choice of the strategy. Secondly, strategy chosen may result from market forces such as trends in customer preferences and changes in technology. For instance, development of technology that allows a company to lower its production cost may result into development of products that can utilize such a technology. Additionally, performance on the market or customer feedback could determine whether a company develops new products to replace existing ones (e.g. new computer operating systems that replace old ones in the market). Alternatively, the entity may make improvements to existing products to meet customer needs (e.g. development of different versions of existing operating systems to meet the different needs of different clients that they serve).