What is product innovation, and why is it important?

Every year, thousands — if not millions — of products are unleashed into the world. These range from brand-new products to improvements on things that already exist. Regular pizza to stuffed crust pizza? That’s product innovation. Giant brick phone to sleek touchscreen? Innovation.

Product innovation has been around for centuries — since, well…the wheel, which is an innovation in itself. But in today’s society, where we need to be on top of every trend, it can make or break a company. And if one particular type of product isn’t doing so well anymore, companies must quickly change their game plan and come up with something different before they lose out.

Innovation is the process of creating new products or updating older ones, and it’s a must if you run a business. For companies that put the time into product research and development, it can be highly lucrative and rewarding when successful. So, how do you do it? And how do you avoid a massive flop? We have some tips.

What is product innovation?

Product innovation refers to changes that improve design, materials, feel, look, capacity, functionality, and overall user experience. An improvement can be tangible, such as a physical product, or intangible, like software or services.

Product innovation helps companies stay relevant in their market and continue growing and improving over time. A company’s ability to innovate is considered essential for its long-term viability.

Companies need to venture out of their comfort zone and get creative when designing new products.

Take Apple, for example. The release of the first iPhone forever changed the look and use of phones, thanks to its sleek touchscreen and internet capabilities. The result? The iPhone developed a cult following, dominated the market for years, and sent Apple’s profits sky-high. So, why is product innovation important? Simple. If you want your company to (at the very least) stay afloat, you have to create products that people want to buy.

Product innovation vs process innovation

What’s the difference between product innovation and process innovation? Product innovation refers to what you design and create, including the quality of the materials used. Process innovation refers to how you manufacture, distribute, and sell it.

A real-world example: Google excels at both forms of innovation. The company invested millions in its Android operating system and drove device sales by investing in its site, creating effective ad campaigns, and even partnering with other companies. The result? Android is a worthy adversary to Apple.

Why is product innovation important?

Many people think there’s no need to innovate if you’re already running a successful business. But this just isn’t true.

• Product innovation is good for the bottom line. Businesses that introduce new products earn higher profits than those that don’t. Companies in the top quartile of new-product introductions generate a median return on sales more than three times greater than those in the lowest quartile.
• Diversifying brings in new opportunities. Product innovation drives expansion by opening up new market opportunities. It also helps firms diversify their business and tap into totally different customer groups.
• Anticipating your customers’ needs boosts retention. If you’re constantly innovating, customers will never see you as irrelevant or out of date.
• Innovation helps you keep up with the market. Whether you innovate or not, other companies will. And those competitors could potentially steal your customers. Innovating helps you differentiate your business and race ahead.

Innovation is good business. The problem is that while most people can spot an improvement, few can develop ideas independently.

This is because it’s hard to spot the opportunity and even harder to get that idea developed, funded, created, and marketed. Innovation also poses a significant risk: 95% of new products fail. When you consider the money that goes into development and release, it’s pretty terrifying.

The Google Glass disaster is proof that even with the most extensive product development team and bazillions of dollars behind you, product innovation isn’t easy. But don’t let us scare you off! Here are some tips to help you.

5 steps to flawless product innovation

1. Brainstorm ideas based on customer research and competitor research. Include a mix of data-gathering methods, including focus groups, surveys, and customer studies.
2. Develop concepts that satisfy customer needs. Continue conducting analysis to make sure these products fit into the competitive landscape. Does the product solve a problem or simplify a process? Is it redundant?
3. Validate concepts via testing. Keep gathering feedback as you go, being sure to listen to what works (and kill what doesn’t).
4. Use customer segmentation to assess the market and determine which of your concepts will be most profitable.
5. Refine your concept via prototyping. Develop a Minimum Viable Product (MVP) to control costs and limit waste. And why stop there? Keep iterating until your product is the best it can be.

Innovation best-practices

Here are some key things to bear in mind when approaching your product innovation strategy.

Do your research

Understand what your customers want. Talk to them about how your product could be improved and which areas you can branch into.

Doing this will help you produce products that people need and want—not something that just sounds like a good idea. It’s essential to avoid falling into the trap of staying in your own bubble rather than asking potential customers what matters to them.

Asking for feedback is also important when it comes to avoiding big mistakes.

Crowdfunding sites are one great way of doing this cheaply, but they come with many pitfalls. The people who pledge to your project aren’t always a representative sample of your target markets. There are countless ways to collect feedback, from conducting interviews and sending out surveys to hiring a market research company. The important thing is to put the customer at the center of everything you do.

Learn to fail fast

Product innovation involves incremental testing and refinement to figure out what works and what doesn’t. The goal is to make improvements in the shortest time period with the least amount of money wasted. The faster you can do this, the quicker you’ll learn.

With every “failure,” learn to adapt quickly to make your innovation work. Maybe, you need to change the way you run focus groups or adjust your pricing strategy based on what you learn from customer feedback.

Use MVPs as a roadmap for improvement. Set up an initial product with just enough features to be released to the public and tested with real people. The purpose is to quickly get it into customers’ hands before you spend weeks or months over-engineering something that nobody wants.

Stay true to your core values

Your company culture establishes the beliefs and behaviors within your organization. These core values should drive everything you do as a company. So, when you innovate, don’t get too distracted by what competitors are doing. Focus on staying true to your core values and doing the right things for your company and your customers

Don’t neglect cost

Your company’s financial health affects everything from employee salaries to R&D budgets. Try not to get caught up in the bells and whistles of creating The Next Big Thing if it means neglecting your company’s overall health.

Product innovation examples

Here are five great examples of companies that created truly innovative products.

1. Tesla Electric Vehicles: Tesla revolutionized the automotive industry with its electric vehicles (EVs). By prioritizing sustainability and cutting-edge technology, Tesla’s EVs offer a cleaner and more efficient alternative to traditional gasoline-powered cars. With features like over-the-air software updates, autopilot capabilities, and long-range batteries, Tesla has set a new standard for innovation in the automotive sector.
2. Beyond Meat Plant-Based Meat Alternatives: Beyond Meat disrupted the food industry with its plant-based meat alternatives. By leveraging advanced food science and technology, Beyond Meat creates products that look, taste, and cook like traditional meat but with a significantly lower environmental footprint. With offerings like Beyond Burger and Beyond Sausage, the company has attracted both environmentally conscious consumers and meat lovers looking for healthier options.
3. Apple AirPods: Apple’s AirPods transformed the audio industry by introducing truly wireless earbuds with seamless integration across Apple devices. With features like automatic pairing, intuitive touch controls, and Siri integration, AirPods offer a convenient and immersive listening experience. By combining cutting-edge hardware with intelligent software, Apple has redefined the way we interact with audio technology.
4. Dyson Supersonic Hair Dryer: Dyson reinvented the hair care industry with its Supersonic hair dryer, which features advanced technology to protect hair from extreme heat damage while drying it faster and more efficiently. With innovations like intelligent heat control, powerful airflow, and magnetic attachments, the Supersonic offers salon-quality results in the comfort of your home. By merging engineering expertise with user-centric design, Dyson has set a new standard for hair styling tools.
5. Nest Learning Thermostat: Nest disrupted the home automation market with its Learning Thermostat, which uses advanced algorithms and sensors to intelligently adjust temperature settings based on user behavior and preferences. With features like remote control, energy-saving modes, and integration with smart home platforms, the Nest Thermostat offers convenience, comfort, and energy efficiency. By harnessing the power of data and machine learning, Nest has transformed the way we manage home heating and cooling.

These examples demonstrate how product innovation can drive success by addressing consumer needs, leveraging technology, and challenging industry norms. By pushing the boundaries of what’s possible, companies can create products that not only meet but exceed customer expectations, leading to long-term growth and competitiveness.

How project management software can help

Even the best product ideas can fail if you don’t have an efficient process for managing and developing them. How will you assign jobs, measure progress and success, communicate between remote team members, and identify bottlenecks in the manufacturing processes?

Project management software can help companies innovate without breaking the bank. It provides a unified platform for teams to collaborate, allowing employees around the world to quickly share ideas and coordinate schedules in real time. This, in turn, makes it much easier for everyone to work successfully towards a shared goal — a must in the fast-paced world of product innovation.

This post was originally published on December 1, 2021, and updated most recently on May 15, 2024.