A new category product is one of several classifications of new products (please see separate article). Other classifications of new products include: new-to-the-world product, product line extensions, product improvements and product repositioning.
When a firm introduces a new type of product to the firm, which is an established product in the marketplace, this is known as a new category entry. A product category is related set of products, primarily from the consumer’s perspective. Some examples of product categories would be: books, cars, computers, soft drinks, fast food outlets, banks, theme parks, cookies, and so on.
Therefore, if McDonald’s was to open its own theme park, then that would be considered a new category entry – although consumers are very aware of it and are active customers of theme parks, this would be new to the organization.
Reasons to enter a new product category
There are several reasons why a firm which is to do this, including:
If the firm’s products are currently in a range of mature markets and organic growth is quite limited, then diversification into a new product category may provide growth opportunities. This tended to be one of Apple’s driving forces to move into smart phones, as they saw limited potential for growth in the MP3 market.
Leverage brand equity
Many established firms will have strong brand equity, possibly across a range of brands, which may have synergy with related product categories. For example, a car manufacturer might start manufacturing trucks, buses, and/or motorcycles. In this case their intent would be to leverage their reputation and customer loyalty across into other categories.
Likewise, a beverage manufacturer might consider snack foods, ice creams or fast food outlets as a related product category where their brand equity might carry.
Established market with known competition
A firm entering another product category would have a good understanding of the size of the market, its growth potential, overall profitability and the strengths and weaknesses of its existing competitors. Therefore, it should contain no real surprises for them and they should be able to develop and implement an effective marketing strategy.
Element of surprise
A company operating in different product categories, and hence markets, may not be perceived as a potential competitor and therefore may have the element of surprise when they do enter the market.
Leapfrog of technology and/or design
A company that has been sitting outside the product category, watching the competitors, may have an advantage of being able to leverage their existing capabilities and develop a product that could potentially leapfrog existing competition.
Obviously Apple is a clear example here, with their entries into smartphones and tablets, where they were a late entrant yet were able to bring significant improvements. Another example of a company that operates in this manner is Virgin that has also successfully been a late entrant into a marketplace.