Chapter 4: Product/Service Development
Exam Notes in Step-by-Step Bullet Points
4.1 Introduction
• Product/service development means the complete process of bringing a new product or service to the
market.
• It is an ongoing practice because businesses keep searching for opportunities and new products help them
strengthen market position.
• The new product development process includes idea generation, product design, detail engineering, market
research, and marketing analysis.
• It is critical because of intense global competition, short product and technology life cycles, unpredictable
consumer buying patterns, and possible market stagnation.
• The chapter also stresses legal protection because entrepreneurs often ignore intellectual property
protection.
Chapter Objectives
• Describe the concept of product and services.
• List the product/service development process.
• Discuss intellectual property protection.
4.2 The Concept of Product/Service Technology
• Many entrepreneurs find it difficult to identify a new product/service or a new market opportunity.
• To start and expand a small venture, an entrepreneur needs to identify opportunities for domestic and/or
international expansion.
• As a venture grows and matures, different management skills may be needed, together with a new infusion
of entrepreneurial spirit, called corporate entrepreneurship.
• Success depends on customer satisfaction and delight.
• A successful product/service should have the attributes customers need, attractive package design, and
robust performance.
• Product design must be practical enough for production and strong enough to create competitive advantage.
• The essence of product design is to satisfy the customer and maximize customer value at minimum cost.
• The offering may be an enhancement of an existing product/service, not necessarily a completely new one.
• Modern companies often introduce smaller, more efficient, and more intelligent products with leaner
operations.
• A successful startup needs a distinctive and compelling proposition that sets it apart from competitors.
• A product/service succeeds best when it eliminates an existing pain or adds significant tangible benefits.
• The chapter warns that not everyone can succeed simply by working on any idea or opportunity; novices
often create more problems than they can handle.
4.3 Product/Service Development Process
• Once the opportunity is selected and a business model is designed, the next step is to develop a
commercial version of the opportunity.
• The chapter presents four broad stages: Idea Generation, Incubation, Implementation, and Diffusion.
• It also explains the detailed process of new product development and commercialization.
4.3.1 Idea Generation
• This is the search for ideas.
• Companies should encourage new ideas.
• A key requirement is that the idea must have a market.
• Useful sources of ideas include consumers, existing products and services, distribution channels, the federal
government, and research and development.
4.3.2 Idea Screening
• The purpose is to reduce many ideas to a few valuable ones.
• Ideas should be written down and reviewed regularly by an idea committee.
• Ideas are sorted into promising ideas, marginal ideas, and rejects.
• Promising ideas are researched further.
4.3.3 Concept Development and Testing
• Attractive ideas must be refined into workable product concepts because people buy concepts, not ideas.
• One idea can be turned into several product concepts.
• Important questions include: Who will use the product? What benefits should it provide? When will people
consume it?
• Concept testing means testing the product concept with a suitable group of target consumers/customers and
collecting their reactions.
• Concepts may be shown in words or picture descriptions.
4.3.4 Marketing Strategy Development
• After testing the new product, the firm develops a preliminary marketing strategy for introducing it into the
market.
• The strategy is refined later as the product moves forward.
• The marketing strategy plan includes: market size, structure, and behavior; planned price, distribution
strategy, and first-year marketing budget; and long-run sales and profit goals together with the marketing
mix strategy.
4.3.5 Business Analysis
• Management evaluates the business attractiveness of the proposal after product concept and marketing
strategy are prepared.
• Sales, cost, and profit projections are prepared to see whether they meet company objectives.
• Management estimates whether sales will be high enough to produce satisfactory profit.
• Expected cost and profit are estimated at different sales levels.
• A simple financial tool used here is breakeven analysis.
4.3.6 Product Development
• If the concept passes the business test, it moves to R&D or engineering to be turned into one or more
physical versions of the product concept.
• The goal is to create a prototype that consumers/customers see as embodying the key attributes in the
concept statement.
• Designers must consider functional characteristics as well as psychological aspects communicated through
physical cues such as color, size, weight, and other cues.
• When prototypes are ready, they must be tested functionally and with consumers/customers.
• Functional tests are conducted in laboratory and field conditions to ensure the product performs safely and
effectively, including durability, speed, and cost.
• Consumer testing may involve bringing consumers into a laboratory or giving them samples to use at home.
4.3.7 Market Testing
• After management is satisfied with functional and psychological performance, the product is ready to be
branded.
• The purpose is to test the product in real consumer/customer settings.
• The firm learns the market size and how consumers and dealers react to handling, using, and repurchasing
the product.
• Market testing gives valuable information about buyers, dealers, marketing program effectiveness, and
market potential.
• Test marketing also helps produce more reliable sales forecasts and pretest alternatives.
4.3.8 Commercialization
• Commercialization is the launch of the product into the market.
• Timing matters: the company may enter first, enter late, or enter in parallel with competitors.
• First entry can bring first-mover advantage and help lock up key distributors and reputation.
• Late entry has advantages because the competition has already educated the market, flaws may be visible,
and the company can learn the market size.
• Parallel entry can use the latest technology and production processes to reduce costs and improve quality.
• Geographical strategy decides whether to launch in one locality, several regions, or national/international
markets.
• Target-market strategy chooses the best prospects, such as early adopters, heavy users, opinion leaders,
and low-cost-to-reach customers.
• Introductory-market strategy can use network-planning techniques such as Critical Path Scheduling (CPS)
to coordinate launch activities.
4.4 Legal and Regulatory Frameworks for Entrepreneurs
• Entrepreneurs have many options when setting up an organization, so they must understand the
advantages and disadvantages of each option.
• Important factors include liability, taxes, continuity, transferability of interest, setup costs, and attractiveness
for raising capital.
• Legal advice is needed to ensure the right decisions are made.
• The novice entrepreneur must also understand the regulatory environment made up of numerous laws and
regulations.
• To operate legally and protect the business from unnecessary suits and liabilities, the entrepreneur needs to
understand the laws governing the business.
4.5 Intellectual Property Protection/Product/Service Protection
• Intellectual property includes patents, trademarks, copyrights, and trade secrets.
• It represents important assets to the entrepreneur and should be understood before engaging an attorney.
• Entrepreneurs often ignore important steps needed to protect these assets because they do not fully
understand intellectual property.
• Intellectual property refers to ideas, inventions, artistic works, and other commercially viable products
created from one’s mental processes.
• Like ownership of physical property, intellectual property is protected by legal means such as patents,
copyrights, and trademark registration.
• Entrepreneurs should protect these assets through the relevant law in order to enjoy exclusive ownership
benefits.
4.5.2 Patents
• A patent is needed when an entrepreneur invents a new thing or improves an existing invention.
• A patent is a contract between the inventor and the government: the inventor discloses the invention and the
government grants exclusive rights.
• Utility patents protect new inventions and functional improvements on existing inventions.
• Design patents protect the appearance of an object and cover new, original, ornamental, and unobvious
designs for articles of manufacture.
• Patents give the owner exclusive rights to hold, transfer, license, and sell a product/process.
• Patents can be sold, transferred, willed, licensed, and sometimes used as collateral.
• Things that can be patented include processes, machines, manufactures, and composition of matter.
4.5.3 Trademarks
• A trademark may be a word, symbol, design, slogan, sound, or a combination of these that identifies the
source or sponsorship of goods/services.
• Trademarks are distinctive names, marks, symbols, or mottoes registered by government offices.
• Unlike patents, a trademark can last indefinitely as long as it keeps performing its function.
• Trademarks are renewed periodically unless cancelled, abandoned, or otherwise lost.
• Benefits of a registered trademark include notice of exclusive rights, the right to sue for infringement,
incontestable commercial rights, customs protection against similar imported goods, the right to use the ®
symbol, and support for foreign applications.
4.5.4 Copyrights
• Copyright protects against printing, copying, or publishing original works of authorship.
• It gives exclusive rights to creative individuals for literary or artistic productions.
• It protects original works such as literary, dramatic, musical, and artistic works.
4.6 The Intellectual Property System in Ethiopia
• The Ethiopian IP system is important because entrepreneurs should protect inventions, brands, designs,
and creative works through the legal system.
• The core exam idea is that product/service protection is part of business protection and business value.
4.7 Chapter Summary
• Product/service development is central to entrepreneurship because businesses need new or improved
offerings to survive and grow.
• A good product/service should satisfy customer needs, deliver value, be practical to produce, and create
competitive advantage.
• The process includes idea generation, screening, concept development and testing, marketing strategy,
business analysis, product development, market testing, and commercialization/diffusion.
• Legal and regulatory understanding is essential for operating safely and successfully.
• Intellectual property protection matters because it protects inventions, brands, creative works, and business
identity.
4.8 Review Questions to Study
• Define product/service development.
• Explain why product/service development is important in entrepreneurship.
• List and explain the stages of the product/service development process.
• Differentiate among idea generation, idea screening, concept testing, market testing, and commercialization.
• Define intellectual property.
• Distinguish between patent, trademark, and copyright.
• Explain why entrepreneurs need legal and regulatory knowledge.
Study tip: Memorize the process in order: Idea Generation -> Idea Screening -> Concept Development
and Testing -> Marketing Strategy Development -> Business Analysis -> Product Development -> Market
Testing -> Commercialization.