Developing New Products and Services: Learning, Differentiation and Innovation

So who's this book for? Well, if you're a budding entrepreneur or inventor you'll get a lot from this book. You'll find templates to help you design products, step-by-step guides on writing business plans and presentations, and tips on when and how to launch your product or service. You'll learn about pricing strategies, financing options, attracting investors, and valuing a business.

But this book isn't just for start-ups or entrepreneurs. All businesses, from global corporations to small- and medium-sized companies, need to continually innovate to stay profitable. This book is for anyone who's involved in developing new products and services and bringing them to market. You may be the ideas person in your company or part of a design or engineering team. You may be in charge of market research, advertising, or sales. Or perhaps you're a CEO looking for a way to re-energize your business.

Understanding economic theory, how markets work, and learning about the business models behind successful companies like Amazon and Apple will stand you in good stead, no matter what field you work in or what rung of the corporate ladder you're on.

But you will need a keen interest in business and economics to enjoy the author's writing. The book is filled with graphs, charts, and diagrams, which help support the author's concepts but can be a bit daunting if you have limited knowledge of the subject. And while the author does a good job of explaining jargon and economic theory, parts of the book are still quite complex and dense. It isn't a light or fast read. That said, you can always pick the chapters that are relevant to you and skip over the others that are too theoretical or not useful.

This book pulls together material the author's been developing over ten years in his teaching practice. G. Lawrence Sanders is a professor in the Department of Management Science and Systems in the School of Management at the State University of New York at Buffalo.

He's served as department chair and chair of the PhD program at the School of Management and his research has been widely published in academic journals.

To complement his own expertise, he also quotes from corporate leaders, business gurus, and authors, including Guy Kawasaki, formerly of Apple, and Andy Grove, a former CEO of Intel.

So keep listening to learn how selling different versions of a product can help increase revenue, how to foster creativity, and how to draw up a business plan that will catch an investor's eye.

A central theme of this book is how organizations can benefit from offering high-end products and services and low-cost versions of the same things.

The author uses Greek mythology to get his point across. He says many products and services can be delivered in three versions: Midas, named after the king who turned everything he touched to gold; Atlas, referring to the god who supported the heavens on his shoulders; and Hermes, after the patron of travelers and protector of shepherds, cowherds, and thieves.

Midas products and services have many features, use complex design and engineering, and are targeted at high-end consumers who aren't worried about price. At the other end of the spectrum, Hermes products and services use basic engineering and design, are low-cost, and are aimed at the bottom end of the market. In the middle, Atlas products and services are made for mainstream consumers. They have enough features to attract the broadest customer base while also being profitable for the company.

We like the author's use of this metaphor and his explanation of the tension between the three areas. Companies that are constantly designing new products and innovating to meet the needs of different levels of consumers – a practice known as versioning – will be the most successful, the author says.

Take the big airlines, for example. They offer seats in first-class, business class, and coach. If an airline only offered one tier of seating at a mid-range price, it would miss out on the extra dollars the wealthier travelers are prepared to spend, while those with less money would be forced to fly on budget airlines or look at other forms of transport. The key is to find out what consumers are willing to pay. Then you can develop products and services at a range of prices and cover the entire market.

The author illustrates his point with a story about an entrepreneur called Joan who started a business selling handcrafted jewelry boxes. Joan began selling her boxes at a flat price of $40 – making a profit of about $20 after costs.

After a while, Joan decided to expand. She began making a high-end version of her jewelry box with cherry wood, brass hinges and knobs, and a top quality inlay. She also made a low-end model using cedar wood, brass-plated hinges and knobs, and a cheap inlay. Her mid-range version was made out of maple wood. By catering to three levels of consumers, Joan covered more of the market and increased her revenue.

The author goes on to give some more tips on how to practice price differentiation. For example, if you're aiming for the top-end of the market, you could add features to a product or service, increase convenience, improve customer service, or add durability. You could also improve a product's design appeal or use advertising and branding to make it desirable to wealthier consumers.

If you're targeting the low-income bracket, you could offer a simple design, basic packaging, less durability, or reduced customer service.

But the author also highlights the potential pitfalls of price discrimination. Companies must be careful not to lose their customers' trust by charging a premium for products that aren't very different to low-end or mid-range versions of the same. If you're marketing a product as an enhanced model at a higher price, make sure its additional features are worth the extra cost.

We think the author's practical, down-to-earth advice on pricing and market segmentation, underpinned by sound economic theory, is particularly useful to anyone starting out in business or getting ready to launch a new product or service.

Let's now look at creativity, which the author says is the force behind innovation and invention. Companies like Apple, Amazon or Google rely on a steady flow of ideas. But how does the creative process work and how can companies or managers create an environment that helps the creative juices to flow?

The author defines creativity as a five-phase process that begins with a trigger. A trigger is a problem or opportunity that can come into our minds anytime and anywhere. We might be jogging, driving, reading, or sketching out some ideas and we'll suddenly think of something that we want to pursue.

After the trigger, we'll want to learn about the problem or idea so we can find a solution or enhancement that really works. This is the time to search and process information and try to understand the problem or opportunity. We can read magazines, talk to colleagues, size up the competition, talk to suppliers, consumers, and attend trade fairs.

Next comes the period of incubation when we'll need to take time out to think about the idea and discuss it further with family, friends, and colleagues.

The author calls the fourth stage learn-by-doing. This is when we design or construct a solution to the problem or opportunity. Depending on the product or service, we can draw pictures, diagrams, or flowcharts. We might build prototypes or create mock-ups.

Finally, it's time to develop know-how. Know-how is the skill or expertise we're going to need to produce, build or bring to market a product or service. Gathering this knowledge is often a collaborative effort between entrepreneurs, designers, developers, and other colleagues.

But keep in mind this creative process isn't linear. You might get to the learn-by-doing stage and then feel you need to spend more time learning about the idea or problem. And you might need to set aside time for incubation throughout the creative process, not just at the start.

So how do you foster a creative environment? The author's tips include having and communicating a shared mission, facilitating one-on-one collaboration as opposed to group meetings only, and promoting risk-taking while also permitting failure.

He also includes six ways to dampen creativity, which we think is a nice touch. They include scheduling too many meetings, overloading team members with tasks, and making them work long days and weekends.

The author wraps up this section with a compilation of creativity techniques he's taken from various sources. We found some of them really useful, particularly the notion of challenging assumptions to come up with fresh ideas.

Take pizza, for example. We assume pizzas delivered to our door should be cheap, hot, fast, and have standard toppings. If you turn this on its head, you get cold, slow pizza with nonstandard toppings. Cold pizza probably wouldn't be a hit, but expensive pizza with a longer delivery time and made with gourmet ingredients might just work.

Towards the end of the book, the author focuses his attention on business start-ups and offers a step-by-step guide to creating a business plan. Budding entrepreneurs will love this section, but it has wider appeal too, with a range of helpful tips on how to bring a product or service to market.

First up is how to write a business plan. If you've never written one before, you might be a bit daunted by the prospect. And even if you've written a few in the past, you'll know it can be a challenging, time-consuming process.

The author aims to simplify this process and he gives readers practical tools to help them analyze their market and ensure their product or service is viable.

He incorporates well-worn techniques such as the review of strengths, weaknesses, opportunities, and threats, known as the SWOT analysis. But he also adds new elements, including a template where you can capture a product's features, attributes, and design.

Before writing a full-blown business plan, the author suggests entrepreneurs write an overview of their business. This begins with a mantra, which is a statement of three to ten words that sets out why your company or organization should exist.

Think of this as a slogan, a watchword or a motto. A mantra for a hospital might be: service, respect, and excellence in healthcare. A software developer might have as its motto: quality software through hard work and creativity.

You then need to define your company's mission in a few sentences, setting out what it does and who its target customers are. A business overview should also include a description of how you plan to make money through price differentiation, perhaps by targeting low-income consumers but also by offering complementary products and services to those who are prepared to pay more. And you'll want to set goals and objectives for the following few months or year and define the tactics you'll use to achieve those objectives.

This overview forms the foundation of your business plan and the author describes in detail how to write a business plan in a later chapter. He lists all the questions you'll need to ask and answer and gives tips on formatting.

He also offers advice on when to launch a product or business and when to hold back, how to finance a venture, how to do due diligence, and how to present your business in a way that'll attract investors. All in all, it's a very comprehensive guide that we think is essential reading for anyone who's starting out in business.

We really like the author's practical tools and templates but we should point out that these charts, boxes, and graphs, on top of the economic theory, make for a dry read in parts. The author adds color by including case studies such as Joan's handcrafted jewelry box start-up and the story of an exotic health drinks company. We'd have liked a few more case studies like these to lighten the tone.

The writing can also be repetitive. Some readers might find this helpful as it helps drive home complex theories, but others may find it frustrating to come across the same explanations again and again.

But if you're starting out in business, bringing a product to market, or need to innovate to keep up with the competition, this book is an excellent resource. It covers a huge amount of ground and it could save you a lot of time – and even money – as you prepare to launch a new product or service.

"Developing New Products and Services" by G. Lawrence Sanders is published by Business Expert Press.

That's the end of this episode of Book Insights. Thanks for listening.