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How to improve product innovation in a business

GoCardless
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Last editedAug 20224 min read

Product innovation is vital to the success of any business. No matter how good your product range is now, times will change. You need to change alongside them, or ideally get ahead of them. So, here are some tips on how to improve product innovation in your business.

What is product innovation?

Product innovation means creating products that are clearly differentiated from the existing range of products in their market. There are three main ways of achieving this. Firstly, companies can develop brand new products from scratch. 

Secondly, they can improve on an existing product. This could mean adding new functionality to the product itself. It could also mean creating a product that complements an existing product. For example, AirPods were created to complement Apple’s iPhones. 

Thirdly, it can mean taking an existing product into new markets. This can mean new geographic territories. Alternatively, it can mean using an existing product in a new way. For example, bubble wrap was originally intended to be used as textured wallpaper. It didn’t catch on in that market so it was redeveloped as a packing material.

Most companies should aim to use all three forms of product innovation. They may not use all of them to the same extent, but ignoring them completely is a mistake.

Importance of product innovation

The fundamental reason why product innovation is important is that it helps companies to survive. Here are three particular reasons why product innovation is important: 

  • Creates a first-mover advantage

  • Builds resilience

  • Encourages growth

Strategies for product innovation

All product innovation is based on the need for businesses to improve somebody’s life in some way. That can mean dealing with a pain point. It can also mean making something enjoyable even better. In some cases, it can mean both. For example, putting cameras on mobile phones has many practical applications as well as fun ones.

The challenge of product innovation is therefore to identify where these opportunities lie. Here are some approaches you can use to address this challenge.

Jobs to be done

The jobs to be done strategy is a framework for identifying customers’ real needs and wants. It goes deeper than just listing the needs and wants that customers already know they have. It aims to identify the needs and wants that customers have but don’t realise they have. This strategy can be hugely valuable when developing new products from scratch.

Continuous improvement

The continuous improvement strategy is a variation of the jobs to be done strategy. As the name suggests, the main difference is that it focuses on improving existing products.

Blue oceans

The blue oceans strategy is the strategy of looking for untapped market areas. Essentially, it’s about finding the places your competitors have overlooked (blue oceans). There are often reasons why they’ve been overlooked, but even so, they can still offer more opportunities than highly saturated markets (red oceans).

Choosing the right approach to product innovation

All of these approaches are equally valid. The right one to choose depends on your goals. This means that your starting point is to define what, specifically, you want to achieve. At a high level, innovation strategies can be divided into two main types. These are disruptive and sustaining.

Disruptive innovations can further be divided into two subtypes. These are low-end and new-market. Low-end disruptive innovations are innovations that target an existing market segment that cannot be cost-effectively served by existing products. 

New-market disruptive innovations target new areas in existing markets. They may then expand to challenge existing products in established markets. Sustaining innovations target the top end of an existing market. They aim to push forward the boundaries of what is possible for existing customers.

Low-end disruptive innovations tend to be best suited to a jobs to be done strategy. The aim of innovation here tends to be to create a product that, literally, just does the job but does it at a price people can afford. New-market disruptive innovations tend to be best suited to the blue oceans strategy. This area of innovation only works if you can go where there is no competition.

Sustaining innovations tend to be best suited to the continuous improvement strategy. This area of innovation generally depends hugely on a company’s knowledge of (and potentially relationship with) its customers. Within reason, price is unlikely to be an issue. Performance is everything (or very nearly everything).

The danger of disruptive innovations

Before you embark on a disruptive innovation project, make some time to assess if you could disrupt your own business. There are two main ways this can happen. 

The first is through the product innovation process taking up more resources than it can justify. The second is through the disruptive product taking away market share from higher-margin products in your range.

If either of these is a possibility but you still want to proceed, then consider ring-fencing the disruptive product innovation from your core business. Once you know whether or not the idea is viable, you can then decide whether to integrate it or set up a new company to progress it.

Mechanics of product innovation

Here are the eight key elements of successful product innovation.

  1. Undertake effective market research. Research at different levels from market-level to consumer-level.

  2. Keep track of technological developments. New developments can mean new tools for developing products.

  3. Look for ways to align business priorities with customer needs and wants. Use proactive and reactive approaches to product development.

  4. Create a team dedicated to product innovation. Make sure that they have all the resources they need to work effectively, including tools to help collaboration.

  5. Recognise the importance of prototyping. Start prototyping as early as you can, and update prototypes regularly while product development is in progress.

  6. Try ideas and be willing to drop them if they don't immediately seem workable. Don't waste time and resources on ideas that aren't viable.

  7. Remember that your pricing strategy is as important as your product. You may need to keep your product’s price low to begin with. Once the market recognises its usefulness, charge more.

  8. Plan your product’s launch meticulously. Be prepared to support customers post-launch, and also deal with media and social media enquiries.

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