New Products in the Portfolio
LEARNING OBJECTIVES
- Explain why new products are crucial to an organization’s success
Factors Influencing the Pace of Product Development
New-product introductions are an important component of the product portfolio. This has always been the case, but there have been a number of changes since 2000 that have increased the pace of new-product development and, with it, the importance of new products in the portfolio.
The Internet has fundamentally changed the way that we think about new products. We could devote an entire course to exploring and substantiating this statement, but for our purposes here, we’ll concentrate on the following notable developments:
- The Internet increases our ability to find new products. In the past, if a local store carried version 3.0 of any product, a buyer could consider the attributes of version 3.0 and make a purchase decision. Today, the buyer may enter the store, but she’s more likely to know the improvements incorporated in version 4.0 and the new features expected in version 5.0.
- The Internet supports real-time comparisons of competitive products, including their features and users’ experience with the products.
- The Internet enables new products and services that have changed expectations for service delivery.
- The Internet enables customers to recommend new products and experiences to others.
In addition to these Internet-related developments, there are many new tools, technologies, and methodologies that are speeding the pace of new product development. For example, software development frameworks make it possible to launch, test, and refine a new Web-based service in a fraction of the time that it required in the past. A new retail offering that, in the past, would have required a team of programmers to bring to market can be launched on Etsy today in less than an hour.
New products have never been faster and easier to launch.
New Products Bring Risk
Still, new products are risky. In the strategic opportunity matrix section we reviewed a number of strategies that include new and existing products. Why is it important to consider whether the product and/or market is new in this strategic context? Current products in current markets are known, and new products and new markets are not known.
In this section we have discussed a couple of examples of new products in the context of company strategies. Apple launched five major iPod models in six years, and then followed them with a total of twenty different versions of those models. Perhaps most interesting, Apple launched three different iPod models—the Classic, the Mini, and the Shuffle—before it saw significant sales growth.
The Johnson & Johnson medical practices unit launched more than fifty new products between 2012 and 2014 but has seen only a 0.5 percent increase in sales during that period. With the 2014 sale of a diagnostics product that was showing declining sales numbers, the SBU is better poised to show growth in its 2015 sales numbers.
Both of these examples show that new products do not guarantee new sales, and they certainly don’t guarantee immediate success.
Role of New Products in the Portfolio
New products bring greater risk to the product portfolio but also greater potential reward. The goal of portfolio management is to balance risk in order to create strong performance today and in the future. Though new products can drain resources in the short run, they are positioned to generate new sales in the long run—and to take off when other products are entering stages of maturity and decline.
The early investment in multiple new iPod models that were not growing quickly created a future base for the growth of the iPod. That, in turn, generated returns and positioned the Apple brand for the development and release of the iPhone. Johnson & Johnson’s medical products division has aggressively invested in new products that can spur growth and divested from products with declining sales. Still, in the first three quarters of 2015, overall growth for the division is down. It is not yet clear whether the new products will generate enough growth to replace the growth of their predecessors.[1]