Companies & Industries

The Best Way to Boost Share Price


By creating new products, companies meet the ever-changing needs of their customers and help lift the stock price

Ultimately, the reason companies in general and marketers in particular are interested in how new products can be developed and introduced more effectively is the money involved. New products are incredibly valuable for three key reasons.

For one thing, they expand your customer base by attracting new clients. By definition, that's what they are supposed to do.

Second, they allow you to get a greater share of your customer's wallet. Very few people give you 100% of their available budget in any given category. (Yes, your customers are cheating on you every day.) But by introducing new products and offering what they are looking for, you give them less of a reason to cheat.

Meeting the Changing Needs of the Customer

For instance, look at air fresheners. People use aerosol as well as plug-ins. If you are in the air freshener business and you only compete on the plug-in side, you are losing out to the people who sell aerosol. Your brand needs to come in both aerosol and plug-in versions. If you do, not only does it get you additional market share, it insulates your company from competition.

Finally, when developed and introduced well, new products do something else that is perhaps much more important than points one and two: They help retain existing customers by continuing to meet their changing needs.

Think about your business. Let's say you have a product line with a target market defined by demographics, psychographics, or purchase behavior. If all you did was continue to market the same product to those same customers, you'd eventually go out of business for two reasons.

Novelty Wins the Day

One is, your competition is constantly trying to woo them away. And how do they woo them away? With an offering that not only is new but is something different from your product. Eventually, they will be able to attract a certain percentage of your customers.

The second reason? There is a bit of a wear-out factor. People like new things, and at some point they are going to look for something different. All other things held constant, your product is in a constant state of atrophy. It is dying bit by bit. Introducing new products will counteract the decline and eventually add to greater revenues.

The takeaway from all this: New products help you attract new customers, while at the same time allowing you to hold on to the ones you already have. (And, of course, since they are buying from you, they are not buying from your competition; so not only are you helped, but the companies you are competing with are hurt.)

A Good Way to Boost the Stock Price

Not surprisingly, then, all these factors have an impact on the company and its share price. Here is the way Gail McGovern, David Court, John Quelch, and Blair Crawford put it in a Harvard Business Review article: "The presumption or organic growth is baked into companies' stock value. If you decompose the stock prices of the leading consumer product companies, you'll see that future growth accounts for as much as 54% of the stocks total value."

That's an important point. When people discuss a company's share price, they love to talk about alliances and acquisitions as ways to get the stock price up. Both of those things are glamorous, but each is notoriously poor at generating greater shareholder value. What does cause the share price to increase is a hot new product. Think about what happens to Apple's (AAPL) shares every time it announces something new. (Can you say iPod and iPhone?)

And, of course, there is a nonfinancial benefit as well: Working on new products makes employees happier. All things held constant, it's pretty exciting to be involved with a company that's launching new products. It's more fun to work with something new. It's fresh; it gets your juices going. It gives you something different to think about. People like all that. You don't want to do the same thing every day. It's more fun to be working on something new.

Especially if that new thing has the very real potential of boosting the company's share price.

G. Michael Maddock is founding partner, and Raphael Louis Vit?n is president, of Maddock Douglas, a company that invents, brands, and markets products "for companies driven by innovation." .

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