Product innovation is critical for companies to stay competitive. Developing innovative products can help companies breathe new life into their businesses by creating new ways to meet customers’ needs and reinvigorating a stagnant market — perhaps even entering into new markets.

Despite its value, product innovation isn’t without its challenges. It’s a complex process, and there are many factors to consider. Understanding customers’ needs, balancing innovation with profitability, and the complexity of developing new technologies are all challenges companies may face, as well as the need to compete with existing products, resistance to change, and risk management.

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In this guide, we’ll provide a detailed overview of product innovation, the various types of product innovation and strategies, and best practices for success.

• What is product innovation?
• Types of product innovation
• Developing successful product innovation strategies
• Product innovation strategy examples
• Product innovation best practices

Read on to learn more about product innovation and how you can set your company up for success.

What is product innovation?

Product innovation is a process for developing new products or improving on existing products in unique and useful ways. It’s essential for companies that want to maintain a competitive edge in the marketplace or expand and grow into new markets.

Requiring careful consideration of many different factors, product innovation requires detailed planning while maintaining the flexibility to pivot as the market demands. Ultimately, product innovation can make or break the success of your business.

Types of product innovation

Product innovation comes in various forms. There are three primary types of product innovation that can be used to describe most innovative products.

Incremental innovation

When a company makes minor improvements to an existing product, it’s known as incremental innovation (sometimes called sustaining innovation). Most companies use this type of innovation at some point, and some, such as software companies, employ it on a continuous basis. It’s generally lower risk and lower cost than most other types of innovation, yet it can give companies a competitive edge by demonstrating the company’s commitment to meeting customers’ needs, even as those needs change over time.

The ongoing evolution of smartphones is a good example of incremental or sustaining innovation. With each design release, manufacturers make incremental improvements such as larger screen sizes, better cameras, and improved battery life.

Breakthrough innovation

Like incremental innovation, breakthrough innovation refers to an improvement to an existing product or service. The difference is that breakthrough innovation must have a substantial impact on the company (such as opening up new market opportunities) while still being a natural fit for the existing business model. Breakthrough innovations also open new markets by making adoption possible for consumers who previously could not use a product due to cost or accessibility.

One such example is Dollar Shave Club, which introduced a subscription model for razors. Dollar Shave Club simplified the process of purchasing razors by delivering fresh razors to its customers periodically through the mail.

Disruptive innovation

Disruptive innovation is the process of creating a new product, service, process, or technology that enters at the bottom of an existing market, initially perceived as an inferior product or service, and gradually works its way up the ladder, eventually displacing the existing market offerings.

Netflix is an often-cited example of disruptive innovation. Initially, the company began as a mail-order DVD rental subscription service. Later, the company introduced streaming services, changing the way consumers view television shows and movies and displacing traditional video rental companies like Blockbuster.

Breakthrough innovation vs. disruptive innovation

There is some disagreement about the precise definitions of breakthrough innovation and disruptive innovation, and the two are used interchangeably. (Whether that’s correct or not, however, is up to debate.) The truth is that innovation can also be a breakthrough or radical innovation and vice-versa, and incremental innovations can ultimately be disruptive through a series of incremental innovations that eventually displaced market competitors over time.

Amazon is a good example of breakthrough innovation that ultimately became disruptive. The company first started by simplifying the process of ordering books through the mail, a breakthrough innovation because it improved an existing process and improved accessibility for consumers. Eventually, Amazon became a disruptive innovation by reshaping the retail industry.

The theory of disruptive innovation was introduced in 1995 by Clayton M. Christensen. In 2015, Christensen published another article in Harvard Business Review in response to the growing misuse of the “disruptive” label.

1. A disruptive innovation must originate from a low-end foothold or a new-market foothold.

A low-end foothold results from a company entering a market to cater to the low-end consumers that incumbents often overlook (or they improve over time with the goal of meeting their most profitable customers’ needs, eventually exceeding what the least-demanding customers need). Thus, disruptors are often ignored by incumbents as they’re not initially viewed as a threat.

A new-market foothold turns non-consumers into consumers by creating a new market. For example, personal copiers were introduced in the 1970s by new companies to cater to the needs of individuals and small companies, creating a new market, while Xerox focused on the high-end, expensive photocopying technology. Eventually, these disrupters gained a substantial position in the mainstream photocopier market.

2. A disruptive innovation must be considered inferior when first entering the market.

To be disruptive, an innovation is first perceived as inferior to the existing market offerings by the majority of customers. While it may be lower cost, it’s not enough to attract existing customers. Eventually, disrupters win over those customers by improving the quality of their products or services to meet consumers’ standards.

Developing successful product innovation strategies

Any type of innovation requires careful consideration and planning. Companies must evaluate the risks vs. rewards, the cost of implementing new technologies, existing market dynamics, and the existence of a need in the market that’s not currently being served. A product innovation strategy is a detailed plan outlining these factors and the path the organization will take to improve on its existing products and services or introduce new products and services.

Let’s take a look at the essential elements of a successful product innovation strategy.

Define your objectives

First, identify your business objectives. Clearly define your business goals, goals for your product or service, and the driving forces behind pursuing innovation.

Maintain a deep market understanding

It’s always essential for companies to keep a finger on the pulse of their market, but it’s even more so when your business is developing a product innovation. Product-market fit can make or break the success of an innovation, so you’ll need deep insights into the Voice of the Customer (VoC), customer sentiment, and customer feedback, including common pain points.

Develop your value proposition

Maintaining (or gaining) a competitive advantage is a top priority, and it’s vital to the success of your business. Your value proposition defines what differentiates you from your competition, so this advantage should be your primary focus when developing product innovations. What value do you offer consumers? Your product should offer better performance, a lower cost, increased convenience, a longer lifespan, or some other substantial value over the existing market options.

Create a resource management plan

Resource management is one of the most important aspects of a product innovation strategy. Without the required resources, you won’t be able to execute fully, if at all. Determine the time, funding, labor, and other resources you’ll need to bring your product innovation to market. Ensure that you have a realistic timeline and that the necessary resources are available.

Product development, testing, and launch

Before introducing a product innovation, you want to be certain that it meets the needs of your target customer and performs as expected. Develop a detailed product development plan as well as a plan for testing and evaluating prototypes or early product iterations with your target audience. You’ll also want a detailed product launch plan in place. Consider product distribution, marketing, advertising, roles and responsibilities, and actionable steps.

Product innovation strategy examples

What does a successful product innovation strategy look like? Here are a few examples of companies that have mastered the art of product innovation.

Apple

Apple takes incremental innovation seriously, launching new iterations of its popular products, such as the iPhone, on a regular basis, always with prominent improvements that are featured heavily in marketing building up to the product launch. The company’s strategy has proven highly successful, with customers waiting in line to be among the first to score the latest iPhone model.

L’Oreal

L’Oreal was an early adopter of augmented reality (AR) in the retail space, leveraging the technology in its marketing campaigns. Through a partnership with Perfect Corporation, L’Oreal integrated its makeup products into the YouCam Makeup app, allowing consumers to test the products virtually.

Microsoft

Microsoft innovated its business model with Office 365, which transitioned the company’s product from a single purchase to an ongoing subscription. The company also created an innovation hub called the Microsoft Garage. With the goal of bringing all Microsoft employees into the innovation process, anyone with an idea could develop it further in the Microsoft Garage. This led to The Global Hackathon, a week-long event in which employees developed and shared ideas, collaborated, and refined their concepts. At the end of the week, employees shared their innovations with other participants and company leaders — some of which have been implemented in processes or integrated into products.

Product innovation best practices

Product innovation requires careful planning, and it’s not always a successful endeavor. However, following some tried and tested best practices helps to ensure the success of your innovations.

Listen to your customers

Successful product innovation is developed with a focus on the customer, not on the needs of the business. Sure, you need to think about what your business needs to survive, but you also need to achieve it in a way that offers value to your customers.

Some of the best product innovations have emerged as a direct result of customer feedback, both good and bad. Not only does listening to your customers provide potential innovation ideas, but it also plays a crucial role in the product development, testing, and launch process.

By leveraging a conversation intelligence platform like CallMiner, you can analyze 100% of customer interactions, including comments, complaints, suggestions, and feedback. These insights from the people who use your products help drive product innovation in the form of new products, new features, and greater customer satisfaction.

Be prepared to pivot

Even the best-laid plans can fail due to unforeseen market shifts or broader economic conditions that fundamentally change the landscape. That’s why you should always be prepared to pivot should your product intelligence reveal obstacles and issues you can’t feasibly overcome.

For example, you might discover that consumers won’t spend what you need to charge for a product, or you might find that adoption will fail without the addition of a feature that you don’t have the resources to create. Whatever the reason, maintain an agile mindset and be prepared to shift gears, fine-tune your product innovation strategy, or start completely anew as conditions demand. Think about Netflix’s pivot from mail-service DVD rentals to internet streaming services. It was a complete refocus of the company’s business model, but one that was necessary for survival.

Build a cross-functional product innovation team

Product innovation isn’t solely the job of research and development, although they play an important role. Instead of leaving it all in the hands of R&D, build a cross-functional product innovation team. Team members from different departments have a unique understanding of your customers and how their role supports their needs. Some departments also have unique relationships with customers, such as customer service and sales teams.

Bringing together these myriad perspectives helps to drive successful product innovation that considers every possible factor. Microsoft’s Garage and Global Hackathon put this best practice into action.

Strive for continuous improvement

Some of the most successful companies were built on incremental innovation. Striving for continuous improvement and always aiming one step higher will help your company maintain a competitive edge. Plus, it gives customers confidence that you’ll always prioritize customer needs, quality, and value, which helps to foster customer loyalty.

Product innovation is a strategic process that can take many forms, and it requires careful planning to get it right. Developing a product innovation strategy, creating a detailed product development, testing, and launch plan, and always keeping your focus on your customers’ needs will set your company apart.