What Is Product Innovation? 3 Stages of Product Innovation

Product innovation is the development of a new product, or the improvement of an existing product, that solves a problem or meets previously unmet customer needs. Not all new products are innovative products. A company that manufactures a product that already exists, but chooses to market it differently, may be creating a “new” product but not an innovative one. Innovative product development creates a new market or fills a gap in an existing market, bringing in consumers by offering features and benefits that did not exist before.

There are several reasons product innovation is essential to progress.

• Provides a competitive advantage: Businesses that establish a competitive advantage demonstrate superior performance over their competitors, allowing them to expand their profitability and market share. Successful product innovation can potentially be a differentiator that sets your company apart. By creating new products, leveraging incremental innovation, or taking an existing product to a new market, an innovation strategy can help increase your value proposition.
• Drives business growth: Product innovation is a common strategy among entrepreneurs, startups, and established companies alike. Not only does product innovation give you a leg up on the competition, but it can also be an effective strategy for increasing profit margins, gaining new customers, and capturing a larger share of the market.
• Creates a marketplace of innovative ideas: In the pursuit of innovation, companies are encouraged to embrace brainstorming and ideation. As a result, the innovation process establishes a marketplace of creative ideas that inspires entrepreneurship, drives human progress, and finds solutions to previously unsolved problems.

New product innovation occurs when a company expands its product portfolio with a first-of-its-kind product. This methodology is often part of radical innovation or disruptive innovation business models. New product development is an essential force in creating new markets, driving invention, and harnessing new technologies. However, it is a risky form of innovation. Completely new products are more likely to fail; the development process is usually expensive, new supply chains have to be developed for manufacturing, and the product may not capture the needs of potential customers.

An example of new product innovation is the creation of the smartphone, a significant departure from existing cellphones. Smartphone companies harnessed new technologies to create a product that didn’t exist before.

Most product innovation is incremental. This involves making innovative improvements and upgrades to existing products, either your company’s or your competitors’. Incremental innovation is crucial to the longevity of a company—improved products with new features motivate existing customers to purchase the latest models, bring in new users who are drawn to the new functionalities, and allow the company to fix bugs and correct flaws in previous iterations.

SaaS (software as a service) companies routinely engage in incremental innovation, developing better features, providing more integrations, and creating a better user experience.

There are three main stages in the product innovation process:

1. 1. Market research: When conducting market research, companies identify potential customers by creating market segments—groups of customers based on demographics. They might choose to run a focus group to collect customer feedback. Then they use this data to brainstorm ways to improve the product.
2. 2. Product development: Product development involves creating a product prototype and testing its viability. These metrics help product managers determine the long-term success of the product.
3. 3. Feasibility assessment: Legal and financial roadblocks often stand in the way of introducing a new product to the market. A feasibility study looks at all the potential pitfalls of taking a new product to market, including sales forecasts and overall production costs.

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