Every product for sale went through many steps to get there. Whether it’s a car, a face moisturizer, or a piece of software, that item is the result of a product development process—a cycle that encompasses idea generation, market research, planning, and more.

Here’s how a smart product development strategy can turn a product idea into a commercial offering with longevity.

What is a product development strategy?

A product development strategy is a business practice companies employ when they build and refine products. A successful product development strategy enables a company to create goods—either new product concepts or the modification of existing products—that customers want to buy.

Product development strategies can be a mix of proactive and reactive strategies. Proactive strategies attempt to grow a business, perhaps by introducing existing products to new markets. Reactive product development strategies aim to hold onto market share and remain competitive in a company’s existing market (also known as a defensive strategy).

5 types of product development strategies

Here are five product development strategies for businesses of any size or industry:

Market expansion
Product improvement
Product extension
Disruptive innovation
Diversification

1. Market expansion

A market expansion strategy involves broadening the target audience for an existing product by setting up shop in or offering delivery to multiple markets. To succeed, a company may need to adjust its marketing strategy, expand its web presence, or open new retail locations. One example of market expansion is when coffee chain Dunkin pushed beyond its original New England hub to set up shops in areas throughout the United States.

2. Product improvement

A product improvement strategy makes positive changes to an existing product or product line—perhaps by tweaking the product design in response to customer feedback or technological advances. A development team can get feedback on a product by convening focus groups or scouring online reviews and social media accounts to see what the public is saying about it. This strategy prolongs a product’s development journey, keeping the product relevant for longer, which can lead to greater profits and offset development expenses.

3. Product extension

Product extension is a business strategy that utilizes a well-known brand name as part of a new product name. For example, when Ford made its first major foray into electric vehicles, it named a key product the Mustang Mach-E to take advantage of the strength of the Mustang brand. The original Mustang was a gas-powered sports car, and the Mach-E is a battery-powered SUV, but market testing convinced Ford to embrace product extension.

4. Disruptive innovation

New product development strategies have the potential to shake up industries that are stagnant or have room for improvement. The technology industry has become synonymous with disruptive innovation as new technology upends old business models—Uber and Lyft in the taxi industry, Airbnb and Vrbo in hospitality, and Netflix and Hulu in television. Often, the disruption involves bypassing third-party brokers and selling goods directly to a consumer, which often lowers costs and improves efficiency.

5. Diversification

Product diversification ensures a business avoids being overly reliant on one product or niche. Companies can diversify by adding new product lines, launching ancillary businesses, or buying up other companies. An example is the ecommerce bedding company Brooklinen, which entered the pillow market with the subsidiary brand Marlow.

How to create a product development strategy

A complete product development strategy is built on six steps.

Product ideation
Product idea validation
Prototyping and testing
Production and launch
Product marketing
Product analytics

1. Product ideation

The product ideation process involves brainstorming new product ideas. If you’re just starting a business and trying to create a new product from scratch, you might think about gaps in the marketplace. What customer pain points aren’t being addressed by products currently for sale? If you have an established business, think about what items or services your existing client base would appreciate on top of your current offerings.

2. Product idea validation

Next, you’ll need to validate your product idea, or determine whether your product can command a large enough market to justify the potentially expensive development process. To get a better sense of the potential demand for the product, you can perform market analysis, conduct focus groups, study similar products, or launch a crowdfunding campaign to see if there are many people who would want to back your product.

3. Prototyping and testing

If you’re confident your product appeals to a customer base, you’re ready to make a prototype. Most prototypes cost a lot of time or money (or both) to create, but they’re necessary in order to test and improve your product before you commit to launching it. For a physical prototype, you might build it by hand, use a 3D printer, or outsource the work to a specialist. Product testing involves getting feedback from people about the prototype and using that to improve the product. You’ll be testing for a combination of product functionality, safety, and customer satisfaction.

4. Production and launch

In order to produce the item at scale, you’ll need a product development process. You may need reliable relationships with manufacturers that can turn raw materials into finished products. If you want to pick from products that manufacturers have already made, you could choose to partner with a private label manufacturer. In this case, you would simply put your brand name on an existing product. Once you decide how to make the product, you’re ready to list it on your ecommerce site for sale.

5. Product marketing

The goal of marketing your product is to educate the public about why it is right for them. To do this, you should come up with and offer value propositions for the product. The product could, for example, be the best quality or most affordable option in the market. Marketing your product may also involve offering package deals that bundle your new product with your more well-established items, or offering a discount on the new product.

6. Product analytics

Once you’ve launched your product, you’ll need to track its sales in order to have information on how you can make it better for current and future customers. When you sell via an ecommerce platform like Shopify, you can see sales reports and analytics filled with relevant up-to-the-minute data, including net sales, sales breakdown, net sales by channel, net units sold by traffic source, and customer profiles. You can use this data to make continual improvements to the product.

Product development strategy FAQ

How do you identify customer needs and preferences?

In order to gauge customer needs and preferences, you can conduct focus groups, do market research, look at comments on your website, or use customer relationship management software. You could also study search engine terms for trending topics and run surveys among people in your target market.

How do you generate ideas for a new product?

One way to generate new product ideas is by looking for gaps in the market to see what customer needs aren’t being served by current offerings. You could also research what existing products don’t seem to adequately address customer pain points, like a skin care product that looks fantastic but washes off too easily.

How do you test and validate a product concept?

You can test and validate your product concepts by sharing them with small test audiences and measuring their responses, feedback, and level of satisfaction. You may also try crowdfunding to see how many people would be willing to pay in advance for the product before you develop and launch it.

What impact does customer feedback have on product development strategy?

Customer feedback on a product or prototype should be taken very seriously, because no product can thrive without a customer base. If a customer reports that a product fails to meet expectations, is too expensive, or is dangerous, businesses need to know that before a big product launch. Conversely, if customers rave about a test product, a business may want to make more of it or design variants that will appeal to additional audiences.