WatchBorn Global features stories from entrepreneurs around the globe   New episodes out now

Product innovation strategy: Types, benefits, and processes (w. examples)

The most widely accepted definition for product innovation is creating and introducing something new to the market. It could be anything, including new products and services, processes, and incremental improvements to existing products. However, people usually refer to new and improved products when talking about innovation.

So what is product innovation?

Below we explore the concept and the process behind it, as well as real-life examples of product innovation in action. Learn why product innovation is worth investing in and key considerations for your company's innovation policy.

What is product innovation?

Product innovation refers to the creation and introduction of a product or service that is new to the market or a substantial and novel iteration of an existing product. It includes improvements in components and materials, incorporated software, technical specifications, and other functional characteristics like user-friendliness. Product innovation is how brands like Apple and Tesla have achieved huge commercial success.

3 types of product innovation

Product innovation has three main categories, as discussed below.

1. New product innovation

Experts term new products as either radical or disruptive because if they achieve a successful adoption rate, they can become game changers and cause a market shift.

However, radical and disruptive innovations are harder to get right, have a lower success rate, and present more risks. For these reasons, they are not common because the challenging part is not coming up with a new idea, but driving market adoption. Success requires a systematic, proven way of taking ideas from conception to marketable products.

2. Incremental changes of existing products

Incremental innovation aims at improving existing products. It's the most lucrative and successful type of product innovation because it improves products enjoying relatively successful market adoption. It also meets the needs of consumers—for example, the innovation of the computer into smartphones, laptops, tablets, and PCs.

3. Development of new product features

Introducing new product features is the third type of product innovation. Developers and designers develop new features to improve products and increase their frequency and adoption. The trick is not to overburden consumers with numerous additional features that distract them from the product's original usability and utility.

6 reasons to invest in product innovation and development

Product innovation is necessary for growth. Customer needs evolve as technology evolves. And because technology is evolving at an incredibly fast pace, it's crucial that you continually innovate your product so that it stays relevant and essential. 

Product innovation, when done right, product innovation has the following benefits:

1. Improved product quality

All business innovations directly improve product quality and performance. In turn, this increases the efficiency and effectiveness of business processes and makes radical structural and operational reforms possible.

2. Smart expansion to new markets

Companies can find a way out in oversaturated markets by turning to product innovation. It gives them a leeway to expand to new markets and get new customers simultaneously.

3. Product differentiation

When companies use a differentiation strategy focusing on one aspect of the product (such as cost value), they create a perceived value among potential customers and consumers. Thus, innovation simplifies customer choices by solving their problems.

4. Business growth

Successful product innovation and adoption boosts the growth of business and industrial enterprises. It allows companies to grow, conquer new markets and turn higher profits.

5. Market domination

Successful companies find new ways to leverage innovation, gain a competitive advantage over their competition, and dominate the market. However, success requires balancing three approaches: new products, incremental improvements, and targeting new markets. For example, Apple dominates the global smartphone market by maintaining its competitive advantage.

6. Top talent acquisition

Innovation requires talented individuals, so companies looking to innovate their products or services must seek top industry talent to ensure success.

Formulating your innovation policy: 5 considerations

Below are some considerations before starting a product innovation process:

1. Costs

Innovation is not free. Companies have to allocate resources, such as money, people, and time, to create new products, services, and processes. On the other hand, innovation can lead to massive cost savings.

2. Market demand and requirements

Product innovation aims to improve consumer experience and utility, so companies must consider what the market wants and what customers demand to drive adoption. 

3. Competitors

The whole aim of product innovation is to gain a competitive advantage in the market. Thus, companies must always consider what their competition is doing and factor it into their innovation policy and strategy.

4. Legal framework

Does your product innovation face legal conflicts (norms, laws, and patents) or ethnic conflicts with societal values? A company could launch a product that violates government rules and regulations—for example, the FDA flagging the launch of an energy drink with a significantly high amount of caffeine.


5. Value proposition

Successful product innovation offers a unique value position and achieves a competitive advantage. For example, it could save customers money and time, provide significant societal benefits, and provide better quality, convenience, or durability.

3 stages of product innovation process

There are three stages of the product innovation process, regardless of whether a company is creating a new innovative product or making changes and improvements to an existing one. 

1. Market research

Companies can do primary or secondary market research when initiating their product innovation process. The aim is to gather as much information as necessary about the tastes and preferences of potential consumers and any existing market gaps.

Primary research involves gathering first-hand information individually via various sampling methods, focus groups, questionnaires, or interviews. Secondary research is universally accessible information from previous studies. Primary research delivers specific results and is limited to the business, while secondary research is low-cost but globally available.

Ensure the following when conducting market research:

Create customer segments

Divide your customers up using their common characteristics such as behaviors and demographics. Segmentation allows you to build a marketing persona and informs your product innovation process.

Collect customer feedback

Collect customer feedback to help make informed decisions moving forward.

Think of ways to improve per customer needs

Lastly, think of ways to improve your product offering per your buyer persona and target customer needs.

2. Product development

Product development is where designers and developers build the first test product (prototype) and test it. This stage includes continuous testing and improvements to develop the final product.

Prioritize new development opportunities

Since you will never have enough time and resources for all the new product development ideas proposed, you must prioritize new development opportunities to narrow down options. Avoid choice paralysis and break down product features by viability, feasibility, and desirability. Also, score options on an effort-to-impact scale.

Build a prototype to test customer response

Test your prototype to assess its functionality and utility using a focus group to provide insight into its effectiveness and limitations.

3. Feasibility study

At this point, you must look at the legal and financial restrictions of introducing a new product to the market. Consider sales forecasts, product price, profitability estimates, and overall production costs.

Product innovation examples

How the leading brands stayed at the top of their markets.

1. Apple

Apple's innovation strategy involves introducing exciting new products and improvements (iPod, iPhone, iPad, and iTunes) and using innovative business models for maximum product success. It utilizes both radical and incremental innovation to its advantage and focuses on product design and functionality.

2. Sony

As a leader in product and process innovation, Sony Electronics remains focused on imagination more than manufacturing. It's currently branching from purely manufacturing hardware to new paths like TV shows, films, and music. Its other products include computer hardware, consumer electronics, telecommunications equipment, video games, robots, and semiconductors.

3. Tesla

Tesla's innovation strategy resulted in impressive in-car hardware and software integration. No other automaker has adopted Tesla's cutting-edge technology and potential for AI and deep learning. As of 2021, Tesla held the number two rank among luxury hybrid and electric cars. It also remains committed to world-changing technology, for example, its fast-charging sustainable batteries.

4. Amazon

Amazon evolved from an online bookstore in the 90s to a global marketplace, device manufacturer, publishing service, cloud content provider, fulfillment network, and entertainment service.

5. Huawei

Huawei is a Chinese tech company that designs, develops, and sells various telecommunications products, including smart devices and consumer electronics. In 2019, Huawei invested $19 billion into research and development, which paid off immediately since it sold more smartphones than Apple that year.

Take the headache out of growing your software business

We handle your payments, tax, subscription management and more, so you can focus on growing your software and subscription business.

Get started todayTalk to an expert

Product innovation FAQs

What is the product innovation charter (PIC)?

The PIC is the epicenter of organized efforts to commercialize new products. It contains the reasons for starting the project, its objectives, guidelines, goals, and boundaries.

What is the difference between radical and incremental product innovation?

A radical or disruptive innovation significantly impacts a market by introducing a new product, while incremental innovation concerns improving an existing product, process, service, method, or organization performance.

What is the difference between product and process innovation?

Product innovation refers to the creation and introduction of a good or service that is new to the market or an improved version of a previous product. On the other hand, process innovation is implementing a new or improved production or delivery method.

How to measure product innovation?

You can use several key performance indicators (KPIs) to measure innovation, including engagement, actionable ideas, costs, projected profitability, actual profitability, and cultural impact.

What are the different types of product innovation frameworks?

There are three types of product innovation: new product innovation, incremental changes of existing products, and new product features.

Related reading