Some Companies Find Product Development is Better Left to Others

As we discuss in the Managing Products tutorial, coming up with new product ideas is a necessary activity for most marketing organizations. As we state: “New ideas are essential for responding to changing demand by the target market and by pressure exerted by competitors.”

New products are critical for several reasons. For instance, new products often offer higher profit margins than older products. New products also can help reposition a company into new markets. And, new products allow marketers to fend off competitors by marketing products competitors may not possess.

In many industries, the options for developing products have traditionally relied on in-house research that follows the 7-Step New Product Development process. However, this can be a fairly time-consuming process and, for some industries such as pharmaceuticals and technology, in-house research can be incredibly expensive. It can also be tremendously risky as the failure rates of products under development in these industries are quite high.

Due to the costs and risks of development, many companies are augmenting their own development efforts by acquiring products developed by others. Several excellent examples are presented in this Fast Company story. It discusses how such leading firms as Amazon, Twitter and Apple have found better product development results by acquiring smaller companies that have already created products. In some cases, the products purchased are used to launch new product lines and in other cases used to enhance existing products, such as adding new features to a product the acquiring company already markets.