A firm can obtain new products in two ways. One is through acquisition—by buying a whole company, a patent, or a license to produce someone else’s product. The other is through the firm’s own new product development efforts. By new products we mean original products, product improvements, product modifications, and new brands that the firm develops through its own product development. In this chapter, we concentrate on new product development.

New products are important to both customers and the marketers who serve them: They bring new solutions and variety to customers’ lives, and they are a key source of growth for companies. In today’s fast-changing environment, many companies rely on new products for the majority of their growth. For example, new products have almost completely transformed Apple in recent years. The iPhone and iPad—both introduced only within the past decade or so—are now the company’s two biggest-selling products, with the iPhone alone bringing in more than 62 percent of Apple’s total global revenues and 77 percent of device unit sales.2

Yet innovation can be very expensive and very risky. New products face tough odds. For example, by one estimate, 60 percent of all new consumer packaged products introduced by established companies fail; two-thirds of new product concepts are never even launched.3 Why do so many new products fail? There are several reasons. Although an idea may be good, the company may overestimate market size. The actual product may be poorly designed. Or it might be incorrectly positioned, launched at the wrong time, priced too high, or poorly advertised. A high-level executive might push a favorite idea despite poor marketing research findings. Sometimes the costs of product development are higher than expected, and sometimes competitors fight back harder than expected.

So, companies face a problem: They must develop new products, but the odds weigh heavily against success. To create successful new products, a company must understand its consumers, markets, and competitors and develop products that deliver superior value to customers.