CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

Innovativeness is one of the fundamental instruments of growth strategies to enter new markets, to perform better in the current market, to increase the market share and to provide the company with a competitive edge. It is motivated by the increasing competition in global markets, companies have started to grasp the importance of innovation, since swiftly changing technologies and severe global competition rapidly erode the value added of existing products and services. Thus, innovations constitute an indispensable component of the corporate strategies for several reasons such as to apply more productive manufacturing processes, to perform better in the market, to seek positive reputation in customers’ perception and as a result to gain sustainable competitive advantage. Particularly over the last two decades, innovativeness has turned into an attractive area of study for those researchers who tried to define, categorize and investigate its performance impacts, especially due to its practical relevance. Innovations provide firms a strategic orientation to overcome the problems they encounter while striving to achieve sustainable competitive advantage.

1

Technological oriented companies have begun to recognize that a blend of innovation and marketing in their overall strategy is vitally important to the achievement of the corporate performance of the firm. The corporate goal of a company could be multifarious but the most common one that cut across many firms in a competitive market is survival, which is achieved through increase in sales and profits. To achieve this goal, the blend of product innovation and marketing concept philosophy must be harmonized with the company’s global strategy.

Product innovation on the other hand involves the introduction of a new good or service that is new or substantially improved.

There are stages of product life cycle and these include introductory, growth, maturity and decline stage. The introduction starts when the new product is first launched. Introduction takes time, and sales growth is apt to be slow. Well known products, lingered for many years before the entered stage of rapid growth. In this stage, as compare to other stage, profit are negative or low because of the low sales and high distribution and promotion expenses. if the new product satisfied the market, it will enter a growth stage, in which sale will starts climbing quickly. The early adopters will continue to buy and later buyer will start following their lead, especially if they hear favorable

2

word of mouth. Attracted by the opportunities for profits, new competitors will enter the market. They will introduce new product features. The increase in competitors leads to an increase in the number of distribution outlets and sales increase. Just to build reseller inventories prices remain where they are or fall only slightly. Companies keep their production pending at the same or a slight higher level. At a particular point, a product’s sales growth will slow down, and the product will enter a maturity stage. This maturity stage normally last longer than the previous stages and it posses strong challenges to marketing management. Most products are in the maturity stage of the life cycle and there most of marketing management deals with the mature product. The sales of most products from brands eventually dip. The decline may be slow, or rapid sales may plunge to zero, or they may drop to low level where they continue for many years. This is the “decline stage”.

At the declining stage, it will be necessary to innovate product, in order to make it withstand the strong competition from competing products and to suit the changing desires of the customers that consumes the product. As it is widely recognized, needs change over time and companies must reflect these changes in their products if they are to achieve the economic objective of increase in turnover, maximizing profit and satisfaction. Throughout modern

3

history, most product innovation receives increasing support and attention. The underlying reason is that markets are highly dynamic. A product that was a profitable product yesterday may not be profitable tomorrow.

Furthermore, successful new products command substantially higher profit margin than mature or declining products. Successful new products are profitable –at least for a while before competitors roll out their own me-too products to the market and eventually compete on price basis. Most companies face the inevitable choice of product innovation on gradually fading products for the market. However, it should be noted that product innovation is not only carried out at the declining stage of a product, it can also be done to a totally novel product at the introductory stage.

Marketing of new product goes through a period of growth, reach a peak, and eventually decline. In addition, profit tends to reach a peak and usually begin to decline earlier than sales volume. Optimum sales volume is often reached only after competitors have entered the field, price rivalry has become intense and profit margin have been shortened. To sustain profit, new products/ services may be needed long before sales of established product/ services have begun to fall. The salient causes of product/ services

4

life cycles may be as a result of instability of consumer demand and instability of competitive position.

Innovation refers to the process that covers product design, production system design, product introduction processes and start of production (Johansen, 2005). “This includes the generation of opportunities, their selection and transformation into artefacts (manufactured products) and activities (services) offered to customers and the institutionalization of improvements in the New Product Development (NPD) activities themselves” (Ebrahim 2010).

It is against this background that the study investigates impact of product innovation on the performance of manufacturing company.

1.2       Statement of the Problem

The experience of most manufacturing companies under recessionary economy is largely characterized by low-consumer demand except for certain products, the demand of which is quite inelastic, most companies in Nigeria usually strive hard to improve on their marketing activities as demanded by environment and at the same time, remain in business.

The effect of low- consumer demand would result in low sales performance, shortfall in profit and low consumer patronage which all have great

5

implications on the attainment of the organizational objective. In order to actualize the organizational objective, the company (Nigerian Bottling Company Plc) came up with the strategic plan of improving and developing new product to remedy its problems.

Companies competing in this fast-paced industry must be able to effectively manage innovation to ensure growth. Unfortunately, there are notable challenges in today’s environment: product design is more intricate, regulatory requirements are more rigorous, quality and production processes are more complex. Moreover, companies are managing many more new ideas and, partly driven by the growth of private labeling, have greatly expanded their product portfolios. And, because of the urgency of getting new products or product changes to market, avoiding costly errors is made much more difficult. These obstacles help to explain why the food industry is one of the few where time-to-market for new products, line extensions, and reformulations is actually increasing.

In this research work, an attempt would be made to evaluate and geared toward priority to look into the associated problems and rendered solution to them and to make some viable recommendations to the company.

6

1.3       Objectives of the Study

The objective of the study is to examine the impact of product innovation on the performance of the organization. The specific Objectives are:

i.                        To identify the impact of product innovation on the sales of Nigerian Bottling Company Plc.

ii.                        To determine how product innovation improve on the profit of the organization