To keep pace with the changing circumstances, it is necessary for producer to develop the new product altogether or to make significant improvements in the existing product in order to remove problems concerning cost of production, market, etc.
Advantages of Product Development
Product development is a continuous activity. It offers the following advantages
(1) Exploitation of Market Changes— Changes in the market make existing products inadequate for buyer’s needs. The most successful products of one time become obsolete the next day. Hence the marketers consciously strive to reach specific market segments by offering new products or improved products. The advantages of market changes can be reaped by the manufacturers only when they are ready to innovate the products.
(2) Industrial Stability— Changes in technology have not only broadened market for old products but have brought into existence entirely new markets, through the creation of entirely new products. A firm following the policy of product development is likely to be more stable because it will not have to face the obsolescence or closure of unit.
(3) Diversification of Risk— Diversification °frisk is another advantage of product development. The threat of obsolescence hangs even over the most stable products. So, the greater the variety of products produced by a firm, the smaller the relative chances of one’s disappearance from the market. But to achieve this diversification of risk, a company must engage in continuous product innovation always seeking new products to offset the losses occurring older products became obsolete.
(4) Other Advantages– A company seeking product innovation can utilize the basic materials it is already using or utilize waste or scrap from the present production. It may add new product to even out sales fluctuations resulting from seasonal or cyclical factors. The profitability of such companies is increased. Such companies can make more efficient use of marketing and production skills. Indeed, product innovation is a major means by which a company can improve its profitability.