Chapter Four

Product and Service Concept

4.1 Product and Technology

At both the micro and macro level of innovation, few products require exceptionally
sophisticated scientific knowledge. Sensational new products occasionally make headlines, but
most are not high tech in the sense of having significant to humankind. Periodically, major
inventions or discoveries emerge that are vitally important. Majority of the products, however,
will evolve at the other end of the technology spectrum as low-tech or no-tech innovations. For
entrepreneurial convenience product technologies are generally classified into three classes.

1. High-tech products
2. Mid-tech products
3. Low-tech products
1. High-Tech Product: Such products tend to be more of “state of the art” products reflecting
current levels of technological advancement. They are result of scientific research and
experimentation, whose uses have managed to reach a business application for the market.
Examples include:
 Semiconductors  Computerized materials
 Digital CD players  Satellite systems etc
 Laser instruments
2. Mid-Tech Products: This class contains a majority of the products that we are familiar with.
This technology assumes the use of existing resources or methods of production that results in
new products.
Examples include:
 Cosmetics  Power supplies
 Fertilizers and nutrients  Fax machines etc
 Desktop publishing

3. Low- Tech Products: Such products are ones that generally are understood to be developed as
a result of small changes or improvements in existing products. However, development of low
tech products requires insight by entrepreneurs to see opportunities.
Examples include:
 Office furniture  Plastic toys
 Paper supplies  Closing and textiles

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  Printer ribbons  Building supplies etc
 Candy and cookie

4.2 Product Planning and Development Process

Once ideas emerge from idea sources or creative problem solving, they need further
development and refinement into the final product or service to be offered. This refining process
– the product planning and development process – is divided into five major stages: idea stage,
concept stage, product development stage, test marketing stage, and commercialization; it
results in the start of the product life cycle (see Figure 4.2)

Figure 4.1: The product Planning and Development Process

Commercialization
stage

Idea Concept Product Test

stage stage Dev’t marketing
stage stage
Growth

Maturity
Introduction

Decline

4.2.1 Establishing Evaluation Criteria

At each stage of the product planning and development process, criteria for evaluation need to
be established. These criteria should be broad, yet quantitative enough -to screen the product
carefully in the particular stage of development. Criteria should be developed to evaluate the

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new product in terms of- market opportunity, competition, the marketing system, financial
factors, and production factors.

A market opportunity in the form of a new or current need for the product idea must exist. The
determination of market demand is by far the most important criterion of a proposed new product
idea. Assessment of the market opportunity and size needs to include consideration of the
following:

 The characteristics and attitudes of consumers or industries that may buy the product
 The size of this potential market in dollars or units,
 The nature of the market with respect to its stage in the life cycle -growing or declining)
 The share of the market the product could reasonably capture.

Current competing producers, prices, and marketing policies should also be evaluated,
particularly in terms of their impact on the market share of the proposed product. The new
product should be able to compete successfully with products already on the market by having
features that will meet or overcome current and anticipated competition. The new product
should have some unique differential advantage based on an evaluation of all competitive
products filling the same consumer needs.

The new product should be compatible with existing management capabilities and marketing
strategies. The firm should be able to use its marketing experience and other expertise in this
new product effort. For example, General Electric would have a far less difficult time adding a
new kitchen appliance to its line than Proctor & Gamble.

Several factors should be considered in evaluating the degree of fit: the degree to which the
ability and time of the present sales force can be transferred to the new product; the ability to sell
the new product through the company’s established channels of distribution; and the ability to
“piggyback” the advertising and promotion required to introduce the new product.

The proposed product should be able to be supported by and contribute to the company’s
financial structure. This should be evaluated by estimating manufacturing cost per unit, sales and
advertising expense per unit, and amount of capital and inventory required. The break-even point
and the long-term profit outlook for the product need to be determined.

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Along with financial criteria, the compatibility of the new product’s production requirements
with existing plant, machinery, and personnel should be determined. If the new product idea
cannot be integrated into existing manufacturing processes, not only is the new idea less positive,
but new plant and production costs as well as amount of plant space must be determined if the
new product is to be manufactured efficiently. All required materials needed in the production of
the product should be available and accessible in sufficient quantity.

4.2.2 Idea Stage

New product development starts with idea generation – the systematic search for new product
ideas. The ideas could emerge from idea sources or creative problem solving. However, they
need an in-depth development and refinement into the final product or service to be offered. A
company ought to generate as many ideas as possible in order to find a few good ones.

4.2.3 Concept Stage

After a new product idea has been identified in the idea stage as viable, it should be further
developed and refined through interaction with consumers. In the concept stage, the refined
product idea is tested to determine consumer acceptance without necessarily incurring the
costs of manufacturing the physical product. Initial reactions to the concept are obtained from
potential customers or members of the distribution channels when appropriate. One method of
measuring consumer acceptance is the conversational interview in which selected respondents
are exposed to statements that reflect the physical characteristics and attributes of the product
idea. Where competing products exist, these statements can also compare the primary features of
existing products. Favorable as well as unfavorable product features can be discovered by
analyzing consumers’ responses, with favorable features then being incorporated into the
product.

Features, price, and promotion should be evaluated for both the concept being studied and any
major competing products. By identifying any major problems in the product concept, research
and development can be directed to develop a more marketable product, or the concept can be
dropped and not receive further attention.

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The relative advantage of the new product versus competitive products can be determined
through the following questions.

 How does the new concept compare with competitive products in terms of quality and reliability?
 Is the concept superior or deficient compared with products currently available in the market?
 Is this a good market opportunity for the firm?

Similar evaluations should be done for each of the remaining aspects of the product – price,
promotion, and distribution.

4.2.4 Product Development Stage

In the product development stage, consumer reaction to the physical product is determined.
One tool frequently used in this stage is the consumer panel, in which a group of potential
consumers are given product samples.

 Participants keep a record of their use of the product and comment on its virtues and
deficiencies.

The panel of potential customers can also be given a sample of the product and one or more
competitive products simultaneously. One test product may already be on the market, whereas
the other test product is new. Both products may also be new, with some significant variation
between them. Then one of several methods – such as multiple brand comparisons, risk
analysis, level of repeat purchases, or intensity of preference analysis – can be used to
determine consumer preference.

4.2.5 Test Marketing Stage

Although the results of the product development stage provide the basis of the final marketing
plan, a market test can be done to increase the certainty of successful
commercialization. This last step in the evaluation process, the test marketing stage,
provides actual sales results, which indicate the acceptance level of consumers. Positive test
results indicate the degree of probability of a successful product launch and
company formation.

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 4.2.6 Commercialization Stage
At this stage the product will be offered for the market and hereafter the product may pass
through additional four stages: Introduction, growth, maturity and decline (see the figure
below).

Figure 4.2: Product Life Cycle

1. Introduction Stage

This stage starts when the new product is first launched. It takes time and sales growth is apt
to be slow.
In this stage, as compared to other stages:-

 Profits are negative or low

 Require much money to attract distributors and build their inventories.

 Promotion spending is relatively high to inform customers of the new product and get them
to try it.

Marketing Strategy

 Firms focus their selling on those buyers who are the most ready to buy

 As the pioneer moves through later stages of the LC, it will have to continuously formulate
new pricing, promotion and other marketing strategies

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  The firm has the best chance of building and retaining market leadership if it plays its cards
correctly from the start.

2. Growth Stage

If the new product satisfies the market, it will enter a growth stage, in which sales will start
climbing quickly.

 The early adopters will continue to buy and later buyers will start following their lead,
especially, of they hear favorable word of mouth.
 New competitors will enter the market, because of the attractions by opportunities for
profit.
 In this case, firms will introduce new product features, and the market will expand.
 Prices remain where they are or fall only slightly.
 Companies keep their promotion spending at the same or a slightly higher level.
 Profits increase during the growth stage, as promotion costs are spread over a large
volume and as unit manufacturing costs fall.

Marketing Strategy

The firm uses several strategies to sustain rapid market growth through:

 By improving product quality and adds new product features and models.

 By entering new market segments and new distribution channels.

 By shifting some advertising from building product awareness to building product

conviction and purchase

 By lowering prices at the right time to attract more buyers.

 By spending a lot of money on product improvement, promotion and distribution, the

company can capture a dominant position

3. Maturity Stage

At some point, a products sales growth will slow down and the product will enter a maturity
stage. This stage normally lasts longer than the previous stages and it poses strong challenges to
marketing management. Here, the slowdown in sales growth results in:

 Marking down prices

 Increasing their advertising and sales promotion

 Upping their R&D budgets to find better versions of the product.

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This step leads to a drop in profit, some of the weak competitors start dropping out, and the
industry eventually contains only well established competitors

To prevent the product going into decline you modify the market, the product and the marketing
mix elements

 To Modify the Market, the company tries to increase the consumption of the product and
looks for new users and market segments.

 To Modify the Product, the company tries to changing characteristics of the product like
quality, features, or styles to attract new users and to inspire more usage.

 To Modify the Marketing Mix, the company try to modify the marketing mix;

 It can cut prices to attract new users and competitor’s customers.

 It can launch a better advertising campaign or use aggressive sales promotion, trade
deals, cents-off, premiums, and contests.
 It can also move in to larger market channels, using mass merchandisers, if these
channels are growing.
 Finally the firm can offer new or improved services to buyers.

4. Decline Stage

Here, the sales of most product forms or brands eventually dip. Sales decline for many reasons
including due to technological advances, shifts in consumer tastes or increased competition.

As sales and profits decline, some firms withdraw from the market. Those remaining may prune
the product offerings. In this case, carrying a weak product can be very costly to a firm.

 A product failing reputation can cause customer concerns about the company and its other
products.
 Companies need to pay more attention to their aging products.
 The firm’s first task is to identify those products in the decline stage by regularly
reviewing sales, market shares, costs, and profit trends.
 Then management must decide whether to maintain, harvest or drop each of these
declining products.

In general, the PLC concept can be applied by marketers as a useful framework for describing
how products and markets work. The products current PLC position suggests the best
marketing strategies and the resulting marketing strategies affect product performance in later
life cycle stages. Yet, when used carefully, the PLC concept can help in developing good
marketing strategies for different stages of the PLC.

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4.3 Product Protection

One of the challenges the novice/beginner entrepreneur will face as he/she goes into business is
understanding the regulatory environment which is made up of numerous laws and regulations.
To operate as a legal businessperson and protect the business from unnecessary suits and
liabilities, the entrepreneur needs to understand the various laws that govern his/her business.
Following are the key legal issues for the entrepreneur.

4.3.1 Intellectual Property

Sometimes as abbreviated as IP, intellectual property is a legal definition of ideas, inventions,

artistic works and other commercially viable products created out of one’s own mental
processes. In the same sense that real estate titles establish ownership of tangible items,
intellectual property is protected by such legal means as patents, copyrights, and trademark
registrations. In order to enjoy the benefits arising from the exclusive ownership of these
properties, the entrepreneur needs to protect these assets by the relevant law. However, because
of lack of understanding, some entrepreneurs seem to ignore important steps that should be taken
to protect their intellectual properties.

Many court cases arise over improper use of intellectual property every day. Unfortunately,
infringement/violation on intellectual property rights can usually be proven only if the owner of
that idea or creation can establish a date of origination. This is the reason why experts strongly
recommend that those in creative fields seek protection through official registration of their
intellectual properties.

4.3.2 Patents

A patent is a grant of a property right by the government to an inventor. All patents have the
distinction of being assets with commercial value because they provide exclusive rights of
ownership to patent holders, their heirs/inheritors and assigns. Patents are exclusive property
rights that can be sold, transferred, willed, licensed, or used as collateral; much like other
valuable assets. Most independent investors do not commercialize their inventions or create new
products from their ideas. Instead, they sell or license their patents to others who have the
resources to develop products and commercial markets.

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 4.3.3 Copyright

A copyright is that the intellectual property is protected for the life of the originator plus 50
years. This protection affords an extraordinary property right and a substantial estate. Among the
things that need to be protected through copyrights are: music, books, software, scripts, articles,
poems, sculptures, models, maps, and blueprints. A copyright extends protection to authors,
composers, and artists, and it relates to a form of expression rather than the subject matter. This
distinction is important because most intellectual property has proprietary information in terms
of subject matter, and if that property cannot be patented, the copyright only prevents
duplicating or using the original material.

In Ethiopia, the revised copyright law was enacted in July 2004. The law severely punishes those who
infringe others’ copyright, whether intentionally or with negligence, with imprisonment of up to 10
years and material and moral compensation of Birr 100,000 minimum. Thus, it is very crucial for the
entrepreneur to understand the law very clearly and proceed accordingly.

4.3.4 Trademarks

A trade mark includes any word, name, symbol, or distinguishing device, or any combination
thereof adopted and used by a manufacturer or merchant to identify his goods and distinguish
them from those manufactured or sold by others. A trade mark is granted through the U.S Patent
and Trade Mark office for a period of 20 years. It needs the necessary renewal.

Examples;

 Coke (name) for Coca-Cola Corporation

 (Symbol) Apple with a bite in the side – Apple Computer Corporation
 Wild Mustang horse- Ford Automobile
 The intricate shield and eagle design- beer cans by Anheuser-Busch

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