GuidesProduct developmentWhat you need to know about product innovation

What you need to know about product innovation

Last updated

25 June 2023


Dovetail Editorial Team

Reviewed by

Jean Kaluza

A groundbreaking product has the potential to break into a stale market and solve customer demands in unique and exciting ways. Innovation ultimately drives firms' growth and keeps them relevant.

Fostering an environment of innovative thought within your organization can take time for a business leader. Determining the potential directions for innovation and navigating the implementation process with your current resources and competencies can be challenging. This blog post provides a comprehensive guide to product innovation that offers valuable insights and practical knowledge to help you grow your business.

What is product innovation?

Product innovation refers to changes that businesses make to enhance design, functionality, aesthetics, capacity, materials, and user experience. These improvements manifest in tangible forms like physical products or intangible forms like software or services. 

Product innovation enables businesses to maintain value in their respective markets and foster continuous growth and improvement. The ability to innovate is widely considered critical to a company's long-term success. Furthermore, it enables the identification and capitalization of various market opportunities, thus leveraging technological advancements to create value for clients. 

In this competitive market, the process allows businesses to generate, design, develop, test, and commercialize ideas to present innovative and superior solutions that are tailor-made for the client. 

Understanding product innovation and process innovation

Product innovation entails using advances in technology, design, and customer insights to produce creative solutions with distinct value propositions. It covers various aspects, including optimizing features, enhancing functionality, upgrading performance, or introducing novel concepts.

On the other hand, process innovation is concerned with enhancing the procedures, tactics, and frameworks used for manufacturing and distributing goods and services. It entails raising productivity, lowering expenses, and enhancing the entire workflow within a business. Process innovation strives to improve products, services, or customer experiences by increasing productivity, reducing waste, and optimizing resource allocation.

The importance of product innovation

Competitive advantage

In our competitive markets, businesses always seek an edge to emerge superior to their competitors—thus the need for product innovation, as it can help your organization differ from others. Since the process involves the continuous introduction or improvement of products, companies can constantly stay ahead by knowing what their clients are looking for and producing tailor-made products. 

Innovation allows the development of unique features which enhance functionality and attract more customers to the brand. In today's dynamic business landscape, product innovation helps organizations stay ahead of market trends and changing client needs, attracting a more extensive customer base and increasing their market share.

Enables growth and market expansion

By improving existing products and introducing new tailor-made products, businesses can attract new markets, providing room for growth. Moreover, product innovation leads to more revenue by ensuring the business's goals align with the client's needs, thus improving customer satisfaction

Therefore, when companies embrace innovation, they create a culture of creativity and entrepreneurship, leading to sustainable industry growth.

Customer satisfaction

Product innovation is mainly done to ensure the satisfaction of your customers. When businesses are customer oriented and develop or enhance their products to better serve the customers, there’s more profitability. 

In addition, it can help a company retain its customers and improve its brand outlook, thereby bringing in new clients and promoting repeat purchases as your products meet the customers' needs.

Adaptation to technological advances

Technological advancements have recently tried to solve preexisting challenges for organizations and present new opportunities. Thus, by encouraging product innovation, businesses can adapt to these changing times and employ emerging technologies to provide products that best meet the expectations of their consumers.

Encourages resilience

Many challenges and barriers are inevitable for businesses. Resilience is crucial because it enables them to persevere and adapt. 

Product innovation encourages the development of resilience by embracing failures in the organization as a learning experience. This plays into the “fail fast” approach and “lean startup” approaches many successful tech companies are known for. It provides room for iterations and, therefore, continuous improvement to present better products from earlier mistakes. 

Moreover, resilience encourages businesses to tap into the unknown with confidence, thus, fostering an environment where innovation thrives. When a culture supports innovation, teams can handle obstacles to develop and present successful and impactful products. Therefore, by encouraging resilience, a company creates an innovative culture that shapes the path to long-term success in product development.

Provides fertile ground for innovative ideas

Product innovation provides an environment that transforms creative concepts into tangible services or products. It creates a market for innovative ideas, encouraging the staff to discover new possibilities to serve customers better. 

Furthermore, innovation requires talented individuals, fostering a creative environment and attracting talent, ensuring your organization has the best personnel to create the best products. The market created allows for healthy competition, propelling economic growth and growing a culture of continuous improvement, which helps businesses. 

Ultimately, organizations can unlock untapped potential by embracing and supporting innovative ideas and staying ahead in an ever-evolving business landscape.

The types of product innovation

Product innovation encompasses a range of types that vary in terms of the degree of novelty and impact they have on the market. The common types of innovation include:

Incremental changes to existing products

Incremental innovation entails making minimal improvements to already existing products or services. The main focus is to enhance certain features and functionalities to optimize the customer experience. By making these iterations, customers are more satisfied with the product, and they extend the product's lifecycle

The key drivers of incremental innovation are customer feedback and market trends, as these help an organization identify which areas need improvement. Some examples of incremental innovation are software updates, design modifications, and product line extensions.

New product innovation

New product innovation involves introducing a new concept that challenges already-established norms and revolutionizes industries. They’re born of solving a need for an existing market that has yet to be solved. They can occur after breakthrough technologies, advancements in science, significant changes in consumer needs, or creative “outside the box” new approaches to problems. 

Furthermore, these innovations can create new markets that redefine customer expectations and greatly impact industries. Examples include the advent of personal computers, smartphones, and e-commerce platforms.

Disruptive innovation

Disruptive innovation introduces new products, mainly addressing the previously overlooked client needs. They offer alternative models, from more affordable and accessible alternatives to already existing solutions. At first, they may not serve the needs of mainstream customers, but as time passes, these products improve to be acceptable in the market. Some examples include ride-sharing services, digital streaming platforms, and low-cost airlines.

Development of new product features

Developing new product features can be added to an existing feature set based on user feedback and data to enhance the performance of a product. The main focus is to optimize the underlying structure by designing a new product feature rather than an incremental change to a feature. 

With these new features, companies can employ existing platforms to produce innovative solutions that offer more value to consumers. Some examples include modular construction techniques, more utility within software platforms, and hybrid vehicles.

The phases of product innovation

Regardless of the type of product innovation a company is making, there are three phases that it must complete, and these are:

Market research

Information is crucial to product innovations. Therefore, when starting the process, businesses must collect all the information possible to ensure the innovative product's success. 

Conducting market research is vital because it helps the organization identify the needs of its clients, which acts as the core guideline when developing a product. Companies can conduct primary or secondary market research at the start of their innovation process.

Primary research gathers first-hand information individually by employing sampling techniques like questionnaires, while secondary research uses information from previous research. If you want specific results, primary research would be the best approach, as although the latter is cheaper, the data is available globally. 

For successful market research, dividing your customers based on their needs and demographics for marketing purposes is crucial, enabling the designing of a useful, data-backed persona. Collect as much customer feedback as possible to help guide your decision-making and, ideally, think of ways to improve your products based on the data you collect.

Product development

After conducting market research, designers and developers use the information to create and test the prototype. When developing the product, continuous testing and improvement are needed to make it ready for the consumer. Therefore, when conducting product development, it’s crucial to prioritize new development opportunities because you’ll need more time and resources for all new ideas. 

In the beginning, ensure you break down the product into the smallest, most cost-effective, yet still viable product possible. You can always add more features once you have paying users. Additionally, when testing your prototype, use a focus group to give you feedback on the product's abilities, effectiveness, and limitations to help you improve before launching the product.

Feasibility study

Financial and legal frameworks often hinder the introduction of new products in the market. Therefore, conducting a feasibility study is crucial as it helps you look at the economic, operational, and legal aspects to establish if the product can be developed and marketed successfully. 

These studies will show you all the potential drawbacks of taking your product to market, which include sales forecasts, product price, and overall production costs. Thus, conducting a thorough feasibility study will inform your decisions on how best to conduct the innovation process.

What are some examples of product innovation?


Apple products greatly sway people and are often mentioned in innovative discussions. Apple has introduced innovative products such as iPhone, iPod, and iTunes, whose development involves innovative business models. By utilizing various types of product innovation, these products' development aims to provide solutions to many consumers.


Sony Electronics focuses on imagination more than manufacturing, and by leading in both product and process innovation, it ventures into films and music. Sony also has other innovative products like electronics, video games, and semiconductors.


When discussing innovation, Tesla is a common company that has greatly gained by employing product innovation to meet consumer needs. They mainly indulge in improving the technology used in making electric vehicles and have successfully commercialized them.


Amazon's cutting-edge products and services have revolutionized the way we shop. The arrival of smart speakers like the Amazon Echo and the speech assistant Alexa transformed how people read books, and voice-controlled smart home gadgets have now become mainstream.

How do you measure product innovation?

Measuring product innovation is an important component of assessing the efficacy and impact of an organization's innovation initiatives. Businesses can gain valuable insights into their innovation performance by employing appropriate metrics. Here are some typical methods and indicators for measuring product innovation:

Number of new product launches

A quantifiable indicator of a company's innovation output is the number of new products it introduces. This measure deals with the number of new goods or substantial product upgrades introduced during a given period. A higher number denotes a healthy pipeline of novel concepts that are successfully commercialized.

R&D investment

Research and Development (R&D) investment serves as a financial indicator of a company's dedication to innovation. Businesses can assess the amount of money committed to creating new products and technologies by looking at the resources allotted to R&D activities. Higher R&D spending frequently indicates greater potential for product innovation. 


Time-to-market is an essential indicator measuring the speed at which a new product is developed, tested, and introduced. A quicker time-to-market displays effective innovation procedures and allows companies to seize market opportunities more quickly. It might be more competitive and customer-satisfying to monitor and shorten the time it takes to sell innovative items.

Growth in market share and revenue

The rise of sales and market share are important measures of effective product innovation. Monitoring changes in market share and revenue that may be directly linked to new goods can help determine how effective an innovation strategy is. 

Increased market share or revenue is a sign that creative products are engaging consumers, fostering corporate expansion, and outperforming rivals.

Challenges in product innovation

Various challenges face product innovation, and some of these include:

Proving product viability

Proving the viability of a product is challenging as companies have to illustrate how their innovative product is feasible and meets the consumer's expectations. Many organizations need to do more to do so. Therefore, when identifying an opportunity for a new product, it’s crucial to identify how it will meet the customer's needs to prove its viability.

High costs

With product innovation, two main costs arise. These are the production and development costs, which are very critical. Ideally, it's unwise to have a product with a high production cost, as that will lower your profits or cause you to lose your money. Focus on products that create value and the factors that ultimately add costs. 

There are development costs which, with wide adoption of your product, it's likely for the organization to recover. So, identify the best approaches and conduct thorough research before creating a product.

Innovation for the sake of innovation

It can be troublesome for companies when they use innovation for branding and when the innovative ideas must align with a wider range of business strategies. Therefore, ensure you fully understand the consumers' problem, as it will help your organization design and develop a product that will comprehensively solve that issue.


In some instances, product innovation can be complicated, having a negative effect on the initiatives made. Sometimes when adding new features to a product, its value can depreciate, leading to a point where the new features cost more than the value added to the product. 

A bit of complexity is also involved with new features, slowing the process and making it harder. Take a moment and understand that simplicity might be the hardest thing to achieve, but the best products are elegant.


A major challenge with consumer products is identifying the right price for them. The pricing of your commodity determines how many people interact with your products, especially if your product is great. When a product isn’t worth the price allocated, many consumers won’t interact with it, jeopardizing your business.

By fostering an environment of inventiveness and providing tools for research and development, you can inspire your team to explore novel concepts and push past the limits of what’s possible. Additionally, it's critical to stay current with consumer preferences, market trends, and developing technology.

With this understanding, you'll be able to spot unmet demands and grab innovative possibilities before your rivals do. Remember that innovation is a continuous process rather than a single event. Encourage innovation, see failure as a teachable moment, and acknowledge wins.


What three companies have got their innovation process right?

  1. Apple Inc. is widely known for delivering groundbreaking innovative products like the iPhone and Apple Watch. 

  2. Google is a company that fosters innovation by allowing employees to work on passion projects, leading to products like Gmail and Google Search. 

  3. Tesla Inc. is widely known for its technological advancements in electric vehicles, which has set them apart in the market.

Is Netflix an example of product innovation?

Yes, Netflix is a great model of product innovation. Netflix transformed the entertainment sector by giving on-demand access to a sizable collection of films and TV series through its subscription-based streaming service. 

With this innovative strategy, Netflix became a trailblazing innovation in digital entertainment, revolutionizing traditional video rental and ushering in the era of streaming platforms.

What’s the difference between incremental and radical product innovation?

Radical product innovation entails introducing completely new and disruptive concepts that revolutionize industries, while incremental product innovation deals with making minimal enhancements to existing products without changing the product.

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