The research and development functional area is responsible for creating new products that meet the ever changing demands of the marketplace.
The research and development functional area must work closely with other functional areas. Market research - from the marketing functional area - will be undertaken to ensure that people will be prepared to buy the product. This will prevent the business spending lots of money setting up the production process for a product that will not sell. The research and development functional area will then state whether or not it is possible to develop the product. Operations will then have to decide if they are able to source the raw materials and components, and set up the production line.
Once the design has been completed a prototype will be built which can be tested. The prototype can be altered and improved before the final version of the product is sold to the public.
The prototype may be test-marketed with a sample of consumers who will provide feedback about the product. This should hopefully reduce the chances of failure when the product is finally released.
The final stage is the product launch. When the product is launched it will go through a number of phases which is known as the product’s life cycle. This can be seen in the diagram below.
While the product is being developed the business will incur a number of costs causing the costs/revenues curve to fall below zero. After its introduction the business will start to earn revenue leading to a rise in the costs/revenues curve. The growth phase sees a rapid increase in the level of sales which slows down as the product enters the maturity phase. As saturation takes place sales will even out until the decline phase occurs and the level of sales fall.