The goal of new product development should be to deliver additional value to existing customers, win new customers, or ideally both.


The Importance of Product Innovation

Product innovation is a necessity for companies trying to stay ahead of changes in the marketplace and ensure their future success. Be proactive, not reactive. Proactive companies aim to control the market by causing changes to happen rather than just trying to avoid pain after those changes have already happened.

Employees should be encouraged suggest and test new products and features. Don’t be afraid to fail. Some of the best new product ideas are born from previous failures. Don’t be afraid of “wasting” time or resources on unsuccessful innovation projects. Whether it’s penicillin or popsicles, some of the best discoveries are made while you’re busy trying to invent something else.

Starting with Idea Generation

New product ideas can (and should) come from many different places: brainstorming, support requests, market trends, demographic trends, employees, competitors, suppliers, focus groups and, last but not least, formal research & development. An innovative market research company must have systems in place for capturing all new product ideas, good or bad.

“There’s no such thing as a bad idea”:

Of course you know that’s not true, but an important driver of innovation is creating a culture where employees feel comfortable proposing new ideas. Forcing your employees to filter their suggestions during the idea generation stage biases them towards proposing only the least-risky products, even if your customers wouldn’t consider them much of an improvement. Make sure you promote a culture of openness and recognize individuals for all of their ideas. The screening and evaluation phase is where you can prioritize the ideas that are most likely to be successful.

Evaluating Product Ideas

Before you start designing or building a product, you need to know its purpose. Why does it exist? What’s the benefit for the customer? What makes it better than competing products?

If you can’t answer all of these questions for a particular idea: reject it.

Next up are the more in-depth questions:

  • Is it technically feasible?
  • What resources will it require?
  • What’s the potential market size?
  • What effect will it have on the market for your existing products?
  • Who are your competitors?
  • What’s the current or expected competitive pressure?

If you’re entering a new market, there’s a wealth of publicly available information you can use to help you answer these questions. Search for relevant releases from the census bureau, bureau of labor statistics, patents office, published surveys and existing industry reports.

If you’re planning a new product for your existing customer base, you probably already have a lot of the information you need to answer these questions. Review your existing product usage data, review your support requests, talk to your customer service and sales teams, and most importantly, talk to your existing customers.

Either way, the answers to these questions should enable you prioritize those ideas with the highest potential for success.

Using Market Research Data

Don’t underestimate the value of primary market research during the earliest stages of product development. Once you’ve narrowed down the list of new product ideas, it’s time to start talking to potential customers. Are they looking for a new solution? What are they currently using? What do they like about it? What don’t they like about it? What are their most important motivators: cost, time or quality?

The answers to these questions should drive the development of your product concepts.

Once you’ve developed one or more product concepts, you should reach out to potential customers again. The most important information to gather from potential customers during the concept testing stage is their ranking of product features, their preference between each product concept and possible competitors, and their likelihood of buying each product at a range of price points.

Concept Testing Approaches

Concept testing studies can be run within focus groups, surveys, games, test marketplaces, or with a combination of each of these methods.

Testing Features
When testing features for product concepts, you should use MaxDiff scaling or Choice Modelling to evaluate which features or benefits are the most important for your potential customers. Both of these methods require potential customers to indicate their preference among a set of features or set of product concepts offering different benefits.

Testing Preference
There are a number of standard approaches to testing preference between product concepts and their potential competitors:

Monadic testing: potential customers rate a single product concept. The benefit of this method is that it focuses the customer’s attention on a single product concept, generating objective feedback without the distraction of comparisons.

Sequential monadic testing: potential customers rate multiple product concepts, one at a time. The benefit of this method is that you can capture more preference information from each customer.

Paired-comparison testing: potential customers compare two product concepts at the same time to determine which one is better. The benefit of this method is that it allows you to discern a preference that may not be obvious from individual or sequential rating scales.

Repeat-pair testing: potential customers compare the same product pair twice, without being told that the second pair is the same as the first. The added benefit of the repeated test is that it allows you to find and exclude non-discriminators i.e. people who say they prefer product A in the first test and product B in the second test don’t have a clear preference, so their results shouldn’t be counted.

Testing Pricing
When testing pricing for early-stage product concepts, you should use Van Westendorp’s price sensitivity meter or the Gabor Granger method to estimate the expected demand curve for each product. When testing more developed product concepts, you should test price points and purchase intent within a virtual marketplace or a real-world test market. A marketplace will more clearly reflect the real-world purchase decisions and trade-offs made by your customers.

Return on Investment for New Product Research

The return on investment for new product research can be simply calculated as the increase in revenue divided by the cost of the project:


Although it’s not as simple to calculate, you must also consider the risks associated with not conducting new product research. Imagine you’re the only player in the industry: how much will launching a product with the wrong features, copy, packaging or price cost your company in lost revenue? Now, imagine you’re operating in a competitive industry: if your competitor launches a product with the right features, copy, packaging or price, your missteps could end up costing you a lot more in first mover advantage and lost market share.

If you want to stay ahead of changes in the marketplace, it’s important to go beyond the basic return on investment calculation and consider the intangible benefits of innovation and new product development. For more information, check out our page on concept testing for new products.