Article: Friday, 16 October 2020
Consumers interact with companies and their products through multiple interconnected channels, often simultaneously. These channels span the physical and digital worlds; they include channels not owned by the company, and often require advanced integration to facilitate seamless customer journeys. The associated changes in consumer behaviour and the ways that companies engage consumers have led many companies to reshape the way they design new products. Researchers Dr Robert Rooderkerk from Rotterdam School of Management, Erasmus University (RSM) and Dr Santiago Gallino from The Wharton School, The University of Pennsylvania studied how the move to omnichannel retail has affected new product development processes at manufacturers. They found seven changes.
Retail represents about 5 per cent of GDP in most countries. Product innovation is an important factor in the sustainment and further growth of retail, so successful new product development is vital for a sizeable part of their economies. We see that omnichannel business models are becoming the norm.
Academic research into omnichannel retailing is a nascent field. Existing research centres on how firms can best co-ordinate the sales and distribution of products across a multitude of channels. But the new omnichannel reality also provides opportunities to design more relevant products. Whereas omnichannel retailing has brought lots of changes to the new product development process (NPD) in business, there is little academic research on this topic.
Structuring scattered thoughts and innovations into a framework that would guide practitioners towards best practices would also help to guide academics into rethinking the traditional NPD funnel.
The fact that the omnichannel business model affects how manufacturers innovate their products is a relatively new insight. We have seen examples, but these have never been synthesized into an overarching framework.
The shift towards omnichannel retail changes the way activities are best performed within each stage of the NPD funnel and may even change the sequence of stages. These changes are influenced by the adoption of the latest technologies and business models. They increasingly lead to channel-specific new product development processes. The seven biggest changes are:
Sparse consumer feedback is an important reason why product innovations fail. Fortunately, the rise of digital and social media, and advances in marketing research have increased both the frequency and quality of consumer insights. Companies increasingly seek consumer feedback earlier in the NPD process.
Consumers are no longer constrained to simply providing feedback along the different stages in the NPD process. The company and the consumer can together design a product that will be offered in the market. One popular method of co-creating is to crowdsource innovation ideas from consumers through innovation tournaments.
A large portion of the essential data required to innovate successfully resides with retailers and platforms. Retailers are also proactively jumpstarting the NPD process with manufacturers. Coolblue, a Dutch omnichannel retailer, carries an exclusive MacBook line in its assortment. These products are the result of Coolblue identifying the needs of a specific customer segment and partnering with Apple. Coolblue provides a set of product specifications attractive to its customers derived from its consumers’ searching, browsing, and purchasing behaviour on Coolblue’s online channel. It is a different spin to what we call pull innovation, which is innovation sparked off by the market rather than by the manufacturer.
Traditionally, companies have used feedback loops in the NPD process. New technologies now allow them to move through certain NPD phases very quickly, even bypassing them altogether in favour of getting insights from the next stage. This enables companies to use the information in their feedback loops to streamline the NPD process and reduce product development time.
Operational efficiency is vital in omnichannel retailing, so it’s not surprising that trade partners are demanding that manufacturers should think in the design stage about how products are transported and sold. New products should satisfy customer needs in superior ways while also allowing partners to achieve operational excellence when making and delivering the product.
The channels by which companies interact with customers can differ substantially in terms of the way the channel suits the product being sold. Some products are better suited than others for being sold online because of each product’s particular spatial limits or the capacity to invoke sensopathic experiences of touching, feeling or hearing the product. Channels may also play different roles in the omnichannel customer journey, such as facilitating customers during their orientation phase compared to enabling customers to place an order. Garçon Wines is a good example of a channel-specific product. The company created a flat wine bottle so its packages could fit through letter boxes in the front doors of homes in the UK.
All of the enhancements 1-6 mentioned above make use of an influx of richer data streams throughout the development stages. Data now form an integral part of the new product development process. This means that stage gate decisions about which concepts to advance have the potential to be much more data-driven.
Innovation and NPD are at the core of building customer and company value. An unsuccessful NPD process may be the start of a downward spiral towards obsolescence, but a successful NPD process creates a competitive advantage.
Our research provides managers interested in product innovation with a variety of stimulating examples of how companies have adapted their NPD process to omnichannel retail. We also create case studies by adapting the well-known model of stage gate product funnels to innovation. Our article on new product development will help companies rethink designing and executing their NPD processes in an omnichannel world.
Rotterdam School of Management (RSM)
Wharton School, The University of Pennsylvania
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