New products and services are the lifeblood of all businesses. Investing in their development isn't an optional extra - it is crucial to business growth and profitability.
But embarking on the development process is risky. It needs considerable planning and organisation.
This guide will outline the key stages in the lifecycle of products and services so you know when the time is right for your business to start the development process.
It will explain how a planned and phased development process will help you make the wisest investment and budgeting decisions. It will also advise you on how best to create a development team and manage a project.
The lifecycle of products and services
There are five key stages in the lifecycle of any product or service.
Development - at this point your product or service is only an idea. You're investing heavily in research and development.
Introduction - you launch your product or service. You're spending heavily on marketing.
Growth - your product or service is establishing itself. You have few competitors, sales are growing and profit margins are good. Now's the time to work out how you can reduce the costs of delivering the new product.
Maturity - sales growth is slowing or has even stopped. You've been able to reduce production and marketing costs, but increased competition has driven down prices. Now is likely to be the best time to invest in a new product.
Decline - new and improved products or services are on the market and competition is high. Sales fall and profit margins decline. Increased marketing will have little impact on sales and won't be cost-effective unless new markets are identified.
Manage the lifecycle
Identifying where products or services are in their lifecycle is central to your profitability. Effective research into your markets and competitors will help you do this. See our guide on how to understand your competitors.
You can extend the lifecycle of a product or service by investing in an "extension strategy". You could:
- increase your promotional spending
- introduce minor innovations - perhaps by adding extra features or updating the design
- seek new markets
But ultimately this only delays a product or service's decline.
Ideally, you should always have new products or services to introduce as others decline so that at least one part of your range is showing a sales peak.
Developing your ideas
There's a lot at stake when developing a new product or service. To minimise risks and allocate investment and resources wisely, you should consider a number of factors:
- Will your new product or service meet customers' specifications? For example, consider its design, ease of use and performance benefits.
- How technologically feasible is the product or service? Can you meet the design, resource and manufacturing requirements?
- Are you clear about what you hope to achieve with the new product or service? Does it meet the strategy outlined in your business plan and play to your business' strengths?
The clearer you are about your plans, the better you can analyse the risks involved.
The following tips may also be helpful:
- consult members of your team about your development plans - they may contribute insights that you've overlooked
- seek the views of suppliers and other business associates - their specialist expertise could be invaluable
- test lots of ideas at the start of a project - it costs relatively little to assess which are most promising, but make sure you stop work on ideas that don't meet your criteria before committing a lot of time and resources
- ask your best customers what they think of your plans
- consider the regulatory framework within which your new product or service will operate
- don't overlook the environmental impact of your plans
- look beyond a new product or service's immediate potential and consider the longer term
Match products and services to market needs
New products and services have to offer benefits that meet your customers' needs. You need to discover what these are.
Market research, using techniques such as surveys and focus groups, will help you do this.
Remember that although the end user of your product or service might be your most important customer, you may have to take the needs of other parties into account.
For example, if you were planning a new DIY product, you would need to consider how retailers would stock it as well as how it would benefit professional decorators. If you're creating a toy, you should consider what parents as well as children will think of it.
Not only must you meet your customers' needs, you have to do so in a way that is better than the alternatives offered by the competition.
Your new product or service needs a unique selling proposition - a feature or property that makes it stand out in the marketplace. Before entering the market you need to determine:
- how customers needs are currently met
- why customers would choose your product or service rather than the competition's, both now and in the future
- what risks you are prepared to take to launch your product or service into this market
To find out more, see our guide on how to understand your competitors.
Pricing your proposed service or product
Establishing a pricing strategy for a new product or service is an important part of the development process. You should consider pricing the moment you decide to take an idea forward as it will determine how much you can afford to invest in the project.
You will need to take the following factors into account:
- The benefits - or value - to the customer of your product or service compared with what the competition has to offer. Will the price be one that customers are prepared to pay?
- Whether or not you're first to market. Is your product or service revolutionary or are you following a market trend?
- The selling channels you want to use, which will affect your promotional spending and distribution costs.
- The speed with which you want to establish your product or service.
- The expected lifecycle of your product or service.
- Whether you are covering your costs.
Strategic pricing can be used to drive sales and regulate demand. See our guide on how to price your product or service.
The project development process
An effective development process for products or services should be divided into a number of key stages:
- Idea generation - to capture new ideas.
- Idea distillation - to screen out those ideas not worth taking forward.
- Concept definition - to consider specifications such as technical feasibility and market potential. If you're planning a new product, you should consider the design process now.
- Strategic analysis - to ensure your ideas fit into your business' strategic plans.
- Concept development - to create a prototype product or pilot service.
- Test marketing and finalising the concept - to ensure your product or service can be modified according to customer, manufacturer and support organisations' feedback. This means deciding the best timing and process for piloting your new product or service.
- Product launch - the trickiest stage. Before setting a date you must determine how to sell, promote and support your product or service. Getting it right first time is essential. But any decisions to delay your launch should be balanced against the danger that your competitors will beat you to market.
In practice some of these stages may overlap, but the presence of a staged process will help keep timing and costs under control.
Creating a project team
Every potential new product or service requires a dedicated development team.
In creating your team you need to include people with a variety of skills. For example, as well as a creative ideas person you may also need a technical expert, a marketing specialist, someone who can source components and someone who understands the supply-chain difficulties you could encounter.
All team members should understand your business' objectives and be committed to them.
There are many forms of effective team working and the right one for you will depend on your business' needs. For example, team members might:
- work as a unit dedicated to one project, reporting to a project manager
- work exclusively on one project but remain in separate departments reporting to department heads who are under the project manager
- work on several projects at once with both a department head and project manager to monitor progress
Teams need someone in a project management role to lead, co-ordinate and motivate the team. See the page in this guide on how to manage a development project.
Investment and cost control
Developing new products and services is an inherently risky process. You must plan any investment carefully and strictly control your costs.
You need to:
- factor any future investment in products and services into your strategic business plan
- plan exactly where this investment will be directed
- justify the expenditure on every project
- manage your costs
Before making investment decisions, consider how much your business stands to gain from a completed product or service. Weigh this against the risks you face.
Phasing new product development
One way to minimise your risks is to phase investments in projects. By reviewing a project at the end of each phase or stage of development, you can identify products or services that are unlikely to be successful before resources are wasted. If the product or service fails to meet established criteria, the project is ditched. If it meets them, resources sufficient to enable it to reach a next, predetermined, stage are allocated.
A range of government grants and tax breaks is available for research and new product development.
It's essential to keep a close eye on costs when you develop new products and services to avoid them spiralling out of control. You should:
- estimate development costs in advance, as described below
- monitor expenditure throughout the development process
- introduce phased investment, as described above
There are two main ways to estimate costs:
- a top-down approach where you consider previous comparable projects and use them as a benchmark
- a bottom-up approach where all team members agree on the costs they expect to incur with one project manager, who will then estimate the total cost
Remember that your costs could include staffing, materials, technology, product design, market research, prototyping and incremental overhead costs.
Manage a development project
Project managers are essential to ensure the successful development of new products or services. They'll be responsible for:
- controlling costs and allocating resources - for further information, see the page in this guide on investment and cost control
- drawing up the key parameters for the product or service's specification
- co-ordinating the product development team - for further information, see the page in this guide on creating a project team
- timetabling the development process
Timetabling the development process
Your project manager should draw up a critical path for the completion of key tasks. SMART (specific, measurable, agreed, realistic and time-limited) objectives can help to control and co-ordinate the development team's advance along this path and stages can be used to monitor progress.
However, flexibility must be built into your plans. Any number of unknowns can come into play and result in, for example, a change in the project's specifications or expected completion date.
Original document, Develop new products and services, © Crown copyright 2009
Source: Business Link UK (now GOV.UK/Business)
Adapted for Québec by Info entrepreneurs