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Procedia Economics and Finance 36 (2016) 147 – 156

1st International Conference on Applied Economics and Business, ICAEB 2015

The relationship between product characteristics, customer and

supplier involvement and new product development
Kaveh Abdolmalekia, Sahar Ahmadian,a*
a
Department of Management, Buinzahra Branch, Islamic Azad University, Buinzahra, Iran

Abstract

The identification of changes in requirements of users in various markets with the competition in business and increase of
economic prosperity leads into the execution of new product development of companies. The aim of new product development is
responding the needs of customers, consistency with market conditions and environmental changes, increase of profit, customers
satisfaction and coping up with competitors policies. This study is aimed to evaluate the relationship between product
characteristics on customer participation and supplier and new product development in study population of manufacturing
companies of furniture in Tehran city. The data collection measure in this study is a questionnaire based on 26 items and
its reliability is supported with Cronbach’s alpha as 0.813. The results of data analysis of 380 questionnaires completed by Lisrel
software showed that all hypotheses were supported and there was an association between product distinction, innovation and
modular product with customer participation and supplier. Also, there is an association between customer participation and
suppliers with new product performance.
© 2016
© 2015 The
TheAuthors.
Authors.Published
PublishedbybyElsevier
ElsevierB.V.
B.V.This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of SCIJOUR-Scientific Journals Publisher.
Peer-review under responsibility of SCIJOUR-Scientific Journals Publisher
Keywords: Product differentiation, Product innovativeness, Product modularity, Customer involvement, Supplier involvement, Product
development

1. Introduction

The main aim of organizations is value creation and survival of organizations depends upon their value creation
ability. Thus, important phenomenon of management of organization is vital and complex increasingly. For effective

* Corresponding author. Tel.: +98 9382691448

E-mail address: dr.ahmadian1@gmail.com

2212-5671 © 2016 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of SCIJOUR-Scientific Journals Publisher
doi:10.1016/S2212-5671(16)30026-0
148 Kaveh Abdolmaleki and Sahar Ahmadian / Procedia Economics and Finance 36 (2016) 147 – 156

management of each organization, the important point is integration and consistency of management systems along
balanced and stable value creation (Khanshir et al., 2012).
Today, relying on traditional competition leverage including increased quality and reduced cost and distinction in
products and services is not adequate and in competition field, some concepts as speed and flexibility are increased
and tendency to presenting new services and products is the justified reason of this approach change (Saeeda
Ardakani, 2011). Development of new product is a new approach to respond environmental changes and is an
introduction to enter competitive space and achieving competitive advantage in the current dynamic world. On
the other hand, dynamics and complexity of new product development and interdisciplinary nature and competition
of organizations with formation of manufacturing new equipment has challenged the production of new products
and caused that researchers in their research have applied different approaches and achieved good findings. In the
present study, new product development is discussed and we investigate the relationship between product
characteristics, customer participation and supplier in development and creation of new product.
Today, due to rapid growth of products and competition of market, we need products and services increasingly.
Increase of population and variety of needs is one of the factors encouraging organizations to achieve new products
and goods. In product life cycle, the profit of product presentation to market in maturity period is maximized.
Indeed, the companies and organizations are inclined to keep their productivity in maturity stage. The challenging
issue for companies is the survival method in this condition. Development of new product is a basic solution for the
survival of companies in this condition and their durability in competitive market (Kmetovicz, 1998). On the other
hand, dynamics and complexity of new product development and interdisciplinary nature and competition of
organizations with formation of manufacturing new equipment have challenged the production of new products.
Most researchers believe that development of new product is an important factor in economic wealth of a country.
Unfortunately, the importance of new product development is not consistent with its success level and failure risk in
new product development is high (Hosseini and Iranban, 2004). Today, relying on traditional competition leverage
including increased quality and reduced cost and distinction in products and services is not adequate and in
competition field, some concepts as speed and flexibility are increased and tendency to presenting new services and
products is the justified reason of this approach change. Form some years, the relationship between new product and
Inter- firm relationships is taken into consideration. Different key success factors are recognized on literature of new
product development and most of them emphasize on the vital role of customers and suppliers. The main focus of
researchers is achieving complete information and knowledge about key customers for true understanding of their
problems and desires (Hippel et al., 2000).
According to the studies of Allen (1971, 1977), Katz & Tushman (1981), more (1986) and Hippel (1986, 1988),
external relations with key customers is a key success factor in product development projects. These relations
increase the information of company in customers’ expectations and it is a factor to improve quality of development
process. Athaide, G.A. and stamp (1999) believe that it is required that sellers determine the respond to the need
of customers at the beginning of product development process and via Product configuration (Athaide, G.A. and
Klink, 2009; 566). Svendsen et al., (2011) believe that the most important aspects of product configuration are
reflected in marketing strategy of company and second customers’ participation in development of new product
requires commitment to customer and supplier relationship. Development of new product is a value creation strategy
and needs the people investing in specific assets allocated to this relationship. Thus, a close relationship with long-
term vision is possible. Marketing strategy of company and investment level are two important factors on whether
customer participation is occurred or not.
By the studies in Iran, we can say three dimensions of product characteristics, customer participation and
suppliers beside each other and their effect on performance of new product are not investigated and the importance
of these dimensions has obliged use to evaluate the product characteristics regarding customer participation and
suppliers in new product performance.
Despite high potentials in furniture and wood industry, it has no good market in Iran and the world and the export
of these goods is not considerable. According to the estimations, furniture import is five times higher than its export.
On the other hand, traditional marketing and ignorance of domestic manufactures to marketing strategies and plans
is one of the greatest problems of furniture industry in our country.
 Kaveh Abdolmaleki and Sahar Ahmadian / Procedia Economics and Finance 36 (2016) 147 – 156 149

2. Related literature review

The existing competition in current markets is with high variety and extension compared to the past. Most
companies attempt to formulate suitable competitive strategies and achieve competitive advantage and by increasing
competition of products increase the growth of company (Rahimnia et al., 2009).
The companies try to present different products attracting different customers in market including customers of
competitors. According to Porter, this leads to unique products for customers. Today, based on social and cultural
changes leading to new needs and by new technological progress, new methods and products are presented in
markets. One of the new phenomena in market is modular products and consumers in industrial and post-
industrial communities observe supply of modular products with unique features. The products being presented in
group, increasing choice considerably, others let the user to create the best plan. The products by which consumer
can find the required product among one group with form features and various costs. Modular products are those
their entire design is designed before and by taking some solutions as creating similar samples, for each of products,
various designs are provided. These measurements are taken before production and during design (Pirbabayi
and Omrayi, 2009).
According to Mclagan & Nel (1995), participation in organizations is an unavoidable issue and its
implementation is necessary. The decisions taken in current organizations are very complex and are relevant from
inside and should be taken by some authorities. Also, participation of suppliers is not only using information of
employees and it is also using knowledge and experience of employees as a counsellor in organizations. According
to Andres (2007), participation methods are developing continuously to develop the participation of suppliers
in organizations and create a subjectivity of real participation of employees to have high performance in
organization and also high satisfaction is created for employees and a modern participative management is
developed. The management in which direct and indirect participation is integrated and in this type of participation,
managers’ profession is completed with the opinions of subordinates, recommendations and opinion of employees
(Moghadasi, 2009).
Another approach in participation issue is participation of customers. Marketing has emphasized on the
significance of the role of customers as partners in production process. Customers don’t act as passive audience and
collaborate actively in value creation and their personal needs pyramid is fulfilled better and also their satisfaction is
improved (Vargo and Lusch, 2004).
The participation of customers in production of products and services of organizations is a concept taking much
attention since 1956 in marketing literature and is developed increasingly. This concept refers to customers as a part
of data of organization for production. Now, it is combined with some issues as common creation of value by
customer and organization and is raised as the main solution of value creation for both parties. In service
organizations compared to manufacturing organizations as service presentation and creation are occurred at the
same time in the presence of customer, participation of customers is of great importance in value creation (Hosseini,
2012).
Lagrosen (2005) considered communication marketing view as the theoretical basis of researches in customer
participation in product development and the results of studies showed the value of functional teams and customer
participation. Also, formal method for customer participation was limited and functional teams were used as
creativity method.

3. Hypothesis development

Customers have needs and desires. The needs of customers are based on goods requirement and their desire is
with the suitability of goods. The customers adapt their needs with the product characteristics and the best one is
selected (Semeijn et al., 2004). Lankster researches showed this fact and customers preference was based on product
characteristics (Gwin, 2003). On the other hand, product distinction is associated with presenting different product
to customer compared to competitors and development and achieving distinction strategy needs access to
information and knowledge as achieved by interaction with customers and research of market and the information
150 Kaveh Abdolmaleki and Sahar Ahmadian / Procedia Economics and Finance 36 (2016) 147 – 156

by this method is valuable in product development process. In the studies of Svendsen et al., (2011), Cohen (1998)
and Sang and Adams (1993), this issue is referred. Thus, based on the previous studies, the first hypothesis of study
is as follows:
H1: There is a positive relationship between Product differentiation and Customer involvement

The participation of suppliers refers to a method of work by which organization members with different duties
and various organizational levels collaborate to solve problems of organization and its solution (Lins, 2005). Thus,
organizations consider participation of suppliers in decisions as the way of achieving knowledge of labor force. Koel
states that participation of suppliers has motivational effect on increase of satisfaction and commitment of
employees (Qolizade et al., 2009) and can be useful for the purpose of company as presenting different products
to attraction different customers in market including customers of competitors and production of unique products for
customers (Svendsen et al., 2011). Thus, the second hypothesis of study is as follows:
H2: There is a positive relationship between Product differentiation and Supplier involvement
According to the case study by McDermott & Handfield (2000), to design innovative products, informal
participation of information between suppliers and internal developing team is necessary. Von Hippel (2005)
believes that suppliers and customers are most important source of innovative ideas to product new products. Kroteo
et al ., (2008) states that high participation level in product innovation is required and sharing information by
suppliers and customers is a vital factor in this issue. Based on the studies, third and fourth hypotheses of study are:
H3: There is a positive relationship between Product innovativeness and customer involvement
H4: There is a positive relationship between Product innovativeness and supplier involvement
In this study, modular products are those selected by cluster production of the product (by user) as in cluster
production, there are some alternatives for each of products as selected by user (during purchase or after it). Modular
products are the set of product and its alternative (as produced based on pre-defined design) and final products of
selection of these parts. Providing products with high modularity is outsourced due to their specific nature. In case
of outsourcing the components of products, the role of participation of suppliers is important to provide modular
products. Technical, manufacturing and marketing information is supplied via suppliers to provide better modular
products. The studies of Sabel and Zetlin (2004) and Brusoni, S. and Prencipe (2001) show that development of
modular products requires participation of suppliers. Also, for effective design of modular products, it is required
to collect from market preferences and customers and share with the different designers of organization. If a
modular design is approved, product modules are investigated based on views, ideas and capabilities of customers.
Based on the information, the required product is modified or is implemented in customer abilities and customer
participation can solve design problems and has new ideas to provide better products and increase of customer
satisfaction. Thus, the fifths and sixth hypothesis of study include:
H5: There is a positive relationship between Product modularity and customer involvement
H6: There is a positive relationship between Product modularity and supplier involvement
Various studies show that the relationship between customer and supplier is a key factor to maintain customer
and his loyalty and let the companies to have effective competition with each other. The seventh hypothesis of study
is as follows:
H7: There is a positive relationship between supplier involvement and customer involvement
According to economy theory, trading cost, manufactures developing new products with the participation of
suppliers and customers, by establishing informal relations can have high success. These relations directly lead to
profit improvement and sale goals.
Resource-based theory shows the necessity of participation of manufactures and suppliers in production of new
products and this is with the improvement of performance of product development and production of new ideas,
solving design problems, better statement of customer needs and finally observing more customers. Also, empirical
studies show that customer participation in initial stages of development affects product sale and profit directly. This
leads to recognition of design problems, recognition of effective ideas, and reduction of product design changes in
final stages and also it leads to increase of development speed of new product, production agility and customer
satisfaction. Thus, hypotheses 8, 9 include:
 Kaveh Abdolmaleki and Sahar Ahmadian / Procedia Economics and Finance 36 (2016) 147 – 156 151

H8: There is a positive relationship between customer involvement and new product development
H9: There is a positive relationship between supplier involvement and new product development

As it was said, based on hypotheses, conceptual model of study is shown in Fig 1.

Fig 1. Conceptual model of study

4. Research design

The mentioned research method is applied in terms of purpose and library and survey in terms of data collection.
The initial data of study is raised by library methods (library explorative tools, like books, papers, theses and digital
texts) to achieve information regarding the concepts raised in study. Thus, hypotheses of study are formulated based
on it. In additional information, non-library methods, field study and questionnaire are used as the main measure of
data collection. Questionnaire of this study is based on Svendsen et al., (2011) and Lau (2011). Based on the results
of measurement of reliability of questionnaire by SPSS software, alpha coefficient is 0.813 and it shows high
reliability of questionnaire. Thus, reliability of questionnaire is supported. Table 1 shows the results of Cronbach’s
alpha computation based on each dimension. To evaluate the relations between components of model,
Structural Equation Models (SEM) is applied. In addition, the researcher has used SEM for Confirmatory Factor
Analysis (CFA).

5. Data collection

The study population is all companies manufacturing furniture in Tehran city. All the managing directors and
manufacturing managers responded the questions. The study population is done via total count. Of total 400
questionnaires distributed among managing directors and manufacturing managers, 378 questionnaires are
completed and received.
152 Kaveh Abdolmaleki and Sahar Ahmadian / Procedia Economics and Finance 36 (2016) 147 – 156

6. Measurement, reliability and validity of scales

Seven-point Likert-type scales were used to develop constructs for the study. Measurement scales had with
reliable psychometric properties, validated in previous empirical studies. Reliability for each scale was determined
using Cronbach's alpha. The reliability score is a measure of the internal consistency of the construct (Nunnally,
1978), and alpha values over 0.70 indicates sound reliable measures. All variables were measured by multi-item
scales. We developed the scales based on measures used in previous empirical studies. The constructs, items and
alpha value results are shown in Table 1.

Table 1. Constructs, items and alpha value results

Construct # of Items Items Prior
(Cronbach) research
1. The fact that the customer presents ideas/suggestions for new product
characteristics is important for our product development.
2. The fact that the customer presents ideas about new materials we can
use to produce the product is important for our product development
Customer Svendsen and
involvement 3. The fact that the customer communicates to us the needs of its
4 Hammervoll,
customers is important for us in developing the product further
(0/812) 2011
4. It would not have been possible for our firm to have an efficient
product development without the competence that the customer
possesses

1. Our production technology is different from that used by our

competitors
Product Svendsen and
differentiation 3 2. The competence required to produce this product is specific to our firm Hammervoll,
(0/80) 3. Our product is different from those sold by our competitors 2011

1. Product can be decomposed into separate modules

2. We can make changes in the key component without redesigning
others
Product Modularity
5 3. Product components can be reused in various products Lau, 2011
(0/815)
4. Product has high degree of component carry-over
5. product’s components are standardized

1. new to existing product

2. new to your customer
3. new to your market know-how
Product
4. new to your technology know-how
Innovativeness 8 Lau, 2011
5. New process technology in your industry
(0/763)
6. New product technology in your industry
7. First introduction into the marketplace
8. Product explores new marketplace
Supplier 1. Joint product design
involvement 3 2. Joint process engineering Lau, 2011
(0/798) 3. Joint production operations
 Kaveh Abdolmaleki and Sahar Ahmadian / Procedia Economics and Finance 36 (2016) 147 – 156 153

New product 1. The product has achieved our sales goal

development 3 2. The product has achieved our profit goal Lau, 2011
(0/823) 3. The product has had great profitability

7. Results

To evaluate hypotheses, Pearson correlation and structural equations method are used. Structural equations model
consists of two components: The measurement model defining relations between latent and observed variables
(measured) and tests factor analysis method and structural model assuming special causal structure between latent
variables (Khaki, 2010). Before investigation of hypotheses, we test the measurement model to test the hypotheses
after assurance of their suitability. As standard coefficients are not in interval (+1.96, -1.96), the mentioned relation
is significant at confidence interval 99%. To evaluate the model at standard condition, it is required to compute the
fit indices of model. The results show that chi-square is 1.8, RMSE 0.05, NFI as 0.96, NMFI 0.91, GFI 0.91 and
AGFI 0.78.
Pearson correlation test provides that by considering significance level (D=5%), we can investigate its
significance. As SPSS statistical software is used to estimate Pearson correlation coefficient, as this software
presents its significance level after computation of Pearson correlation coefficient, in results of analyzes, if
significance level is less than 5%, this result is achieved that there is a significant association between two variables.
If significance level is bigger than 5%, H0 is supported and shows the lack of significant relationship between
the variables.
The results of Pearson correlation test and results of causal relations test by structural equations modeling method
are shown in Table 2. As shown in Table 4, R standard coefficient or factor load of all hypotheses are higher than
0.5. Also, significance coefficient (t-value) is not in (+1.96, -1.96). All study hypotheses are supported. Fig 2 show
the result of structural equations modeling.

Table 2.Results of Pearson correlation test and causal relations test by structural equations modeling

Significance Standard Result of

Pearson
Hypotheses sig coefficient coefficient hypothesis
coefficient
(t-value) ® test
There is a positive relationship between Product
differentiation and Customer involvement 0.79 0.000 0.89 8.25 Supported

There is a positive relationship between Product

differentiation and Supplier involvement 0.71 0.000 0.83 6.23 Supported

There is a positive relationship between Product

innovativeness and customer involvement 0.80 0.000 0.91 11.01 Supported

There is a positive relationship between Product

innovativeness and supplier involvement 0.60 0.000 0.69 3.31 Supported

There is a positive relationship between Product

modularity and customer involvement 0.59 0.000 0.79 4.58 Supported

There is a positive relationship between Product

modularity and supplier involvement 0.77 0.000 0.85 7.24 Supported

There is a positive relationship between supplier 0.67 0.000 0.77 4.02 Supported
154 Kaveh Abdolmaleki and Sahar Ahmadian / Procedia Economics and Finance 36 (2016) 147 – 156

involvement and customer involvement

There is a positive relationship between customer

involvement and new product development 0.71 0.000 0.80 5.11 Supported

There is a positive relationship between supplier

0.68 0.000 0.71 3.94 Supported
involvement and new product development

Fig. 2. Output of structural equations modeling

 Kaveh Abdolmaleki and Sahar Ahmadian / Procedia Economics and Finance 36 (2016) 147 – 156 155

8. Discussion and conclusions

The major purpose of present study is evaluation of the relationship between product characteristics and customer
participation and supplier and new product development. The results of statistical analysis show that there is an
association between product distinction and customer participation and supplier in product development and product
distinction is strongly effective on customer participation in product development. The studies Svendsen et
al., (2011), Cohen (1998) and Sang and Adams (1993) support this issue. Also, product distinction is effective
strongly on supplier participation in product development. The results of hypothesis test are consistent with the
results of stud y of Lau (2011).
Product innovation is strongly effective on customer participation in product development. The studies of lau
(2011), Nambisan, S. and Nambisan (2008) and Baldiven and Hanel (2003) supported this hypothesis and studies of
Lau (2011), Lin and German (2004) supported the relationship between product innovation and supplier
participation. Regarding modular products, the results of study showed that it was strongly effective on customer
participation in product development. Studies of Lau (2011) and Salvador et al., (2004) supported this issue. Also, it
is effective strongly on involvement of supplier in product development. The studies of Lau (2011) and Brusoni, S.
and Prencipe showed this fact. Also, involvement of supplier is strongly effective on customer participation in
product development. This result is observed in the studies of Walter (2003) and LaBahn, D.W; Krapfel (2000).
Also, results show that customer participation in product development is strongly effective on new
product performance. The studies of Svendsen et al.,(2011), Lau (2011), Lagrosen (2005), Kolinnew (2001) showed
the support of this hypothesis. On the other hand, supplier participation in product development is effective strongly
on new product performance. The results of studies of Lau (2011), Petersen et al., (2003) and Wynstra, F; Pierick
(2000) are consistent.

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