Product Development (SQA National 5 Business Management): Revision Note

The process of developing products

• Product development is the process a business follows to create a new product or service, or to improve an existing one, to meet customer needs and stay competitive

• A successful product development process helps reduce risk, control costs, and ensure the final product appeals to the target market

The product development process

1. Market research

• Before any ideas are developed, businesses carry out market research to find out what customers want and what competitors are offering

  • Research identifies gaps in the market or areas for improvement in existing products

  • It can include field research, such as surveys, focus groups or interviews and desk research, such as analysing sales data and trends

• Decisions made in this stage include

  • Who the target market will be

  • What customer needs the new product must meet

  • What price range and quality level are appropriate

2. Idea generation

• Businesses then brainstorm potential product ideas

  • Ideas can come from employees, customer feedback, competitor analysis or new technology

• Decisions made in this stage include

  • Which ideas are feasible?

  • Which products fit with the brand image and existing product range?

3. Product screening and selection

• Not all ideas are practical or profitable, so the business evaluates and screens them to choose the most promising one

• Decisions made in this stage include

  • Whether there are enough resources and skills to produce it

  • Whether it will meet legal, safety or ethical standards

4. Prototype development

• A prototype (or sample model) is created to test the design, function, and safety of the product before mass production

  • Prototypes help identify faults or design improvements early in the process

• Decisions made in this stage include

  • Which materials and production methods will be used

  • How the product will look, feel and perform

  • Whether to continue with production or redesign

5. Test marketing

• The product is launched on a small scale in one area or to a limited group of customers

  • Feedback is collected on performance, price, packaging and customer satisfaction

• Decisions made in this stage include

  • Whether the product should be modified or improved

  • What price level and promotion strategy work best

  • Whether there is enough demand for a full launch

6. Full product launch

• Once the business is confident in the product, it is introduced to the wider market

• At this stage, all elements of the marketing mix — product, price, place, and promotion — are finalised

  • Pricing: choose the most suitable pricing strategy (e.g. competitive, skimming, penetration)

  • Distribution (place): select how and where to sell — e.g. retail stores, online, or direct to customers

  • Promotion: design an advertising and promotion campaign to create awareness and encourage sales

• As well as this, decisions on production approach, such as whether to use job, batch or flow production, depending on demand and cost

Risks of product development

• Developing new products can help a business grow, but it also involves significant risks

• Poor planning or incorrect decisions at any stage can lead to financial loss and damage to reputation

The main risks of product development