Several factors contribute to new product development. While most are related to external environmental variables, the most important internal factor in new product development is the surplus capacity that a firm may have at any given time. Although firms should not pick up product to fill their surplus capacities, the fact is that too many do. Consider the example of Godrej soaps that launched a series of new brands of toilet soap, mainly to fill its existing surplus capacity, once Ponds walked out of Godrej’s manufacturing program. However, there are several environmental factors contributing development of new products.
Changing customer preferences:
The driving force in new product- development is the changing customer life-style, leading towards a change in the customers’ preferences and expectations. The changing role of women, growth in the nuclear and stand alone families, increase in education and income levels, and a manifold increase in the electronic media also contributes towards changing customers’ expectations and preferences. Most of todays new products , be they garments, footwear, leather wears, perfumes, designer wears, appliances and other durables and even credit cards, are the result of this change in consumer life style and preferences.
Another factor is the technological changes in the industry and the market. For example ,if Mrs. Indira Gandhis government had not decided to expand the television network to cover 70% of the Indian population, launched its own Satellite INSAT 1B and started color telecast in 1982, it is extremely doubtful if many of today’s product would have seen the light of the day in the Indian market. As an example , Maggi noodles wouldn’t have been so successful.
Application of chips technology to the watch- making industry gave us a quartz watch- some thing which Titan watches have successfully used to shake up the Indian market.
To take advantage of the technological changes and remain competitive, the firm has to have a closer relationship with technological institutes, universities and other R&D labs.
The government policy also can encourage or foster new product development process. for example, a government policy encouraging competition and entrepreneurship can motivate firms to launch new products. a case in point is , after the government of India allowed board bending in its industrial licensing policy and Maruti became a rage with Indian consumers, Hindustan Motors and Premier Automoblies started analyzing means to improve their own market position. they launched two new products, each of which was targeted at the higher end of the market (Hindustan Motors Contessa and Premiers 118 NE are result of the government policy encouraging competition in one automobile sector). Similarly,
Government policy insisting on chemical firms for an environmental audit, has led to a growth in the demand for pollution control equipment.
Thus , environment external and internal- contributes towards the development process of new products.