Article published in the American City Business Journals on February 8, 2022.
Development of new products takes more than technical success in the lab. Based on my experience as a product manager, business unit general manager and CEO, there are seven key questions that must be addressed when developing products for industrial markets.
1. Does the market need a new product?
Perform market research to determine the current state of the market and where it’s going. Occasionally, R&D may envision a product that the market does not yet know it needs. This is a significant opportunity because there is no existing product to compete with.
2. What is the growth rate of the market where our new product will be sold?
A growing market provides room for a new entrant. A stagnant or declining market invites a competitive response, usually by the incumbent supplier who will lower prices to maintain its market share. Entering a stagnant or declining market with a me-too product makes little sense.
3. What is the competitive landscape for the product?
The more competitive products there are, the harder it will be to break into the market. How will your product be different? Is your new product sufficiently superior to convince customers to switch from a competitive product?
4. Who are the potential customers who can provide feedback as our new product is developed?
It’s important to receive customer feedback during new product development to ensure it meets/exceeds customer expectations. Product properties will need to be tweaked to optimize product performance, and feedback from a customer partner is invaluable.
5. Does your company have the expertise to provide ongoing high-level technical expertise required by customers?
My company developed low cost manufacturing technology for a product used in a highly technical industrial end-use market. Low cost, however, was not the priority of the marketplace. Customers prized technical expertise and needed a supplier that could help them advance their own products which we couldn’t provide, limiting our penetration of that high-margin profitable market.
6. How should the product be priced and what should be the promotion and distribution strategy?
Ideally, a product should be priced based on its value in the end use compared to competitive products. Companies strive to charge a premium by differentiating their product based on its performance and the technical and customer service they can provide. Will the product be promoted as a premium product? Will a different channel of distribution be required than the company currently uses?
7. Can the company earn a return on investment on the new product?
At the projected price and projected sales volumes that can be achieved, can the company earn a sufficient discounted cash flow internal rate of return (IRR) on the development costs and capital investment needed to produce the product? Is the IRR high enough, given the risks associated with the project? Perform a sensitivity analysis to determine the impact on IRR if the capital cost to build the production plant exceeds estimates, projected sales volume ramps up slower than projected, or competitive responses erode pricing.
A question that must be continuously asked is, “Why will customers want to buy our new product?” Addressing this and the above questions will raise the probability of a new product’s success.
Stan Silverman is founder and CEO of Silverman Leadership and author of “Be Different! The Key to Business and Career Success.” He is also a speaker, advisor and widely read nationally syndicated columnist on leadership, entrepreneurship and corporate governance. He can be reached at Stan@SilvermanLeadership.com.