Entrepreneurship and Enterprise Development

Chapter Four
Product and Service Concept

At the end of this chapter, you will be able to:

 Explain the various concepts of Product

 Identify the steps of Product development process
 Differentiate the types of product protection mechanisms

4.1 INTRODUCTION
This chapter begins our discussion of the functional areas of marketing. Why do we begin our
discussion with product rather than with promotion, distribution, or pricing? The answer is quite
obvious. None of those other functions serve any useful purpose without a company product that
provides consumer satisfaction. Without a product, there is nothing to promote, nothing to
distribute, nothing to price. This does not suggest that product is more important, rather, it is the
impetus for the other marketing functions. Logically, we should start at the beginning, and the
beginning of a market place is a set of correct decisions about the product offerings of the firm.

4.1.1 DEFININGTHE PRODUCT

In essence, the term "product" refers to anything offered by a firm to provide customer
satisfaction, be it tangible or intangible. It can be a single product, a combination of products, a
product-service combination, or several related products and services. It normally has at least a
generic name and usually a brand name. Although a product is normally defined from the
perspective of the manufacturer, it is also important to note two other points-of-view-those of the
consumer and other relevant publics.

We define product as follows: Anything, either tangible or intangible, offered by the firm; as a
solution to the needs and wants of the consumer; is profitable or potentially profitable; and meets
the requirements of the various publics governing or influencing society.

There are four levels of a product: core, tangible, augmented, and promised. We begin with the
notion of the core product, which identifies what the consumers feel they are getting when they
purchase the product. Because the core product is so individualized, and oftentimes vague, a full-
time task of the entrepreneur is to accurately identify the core product for a particular target
market.

Once the core product has been indicated, the tangible product becomes important. This
tangibility is reflected primarily in its quality level, features, brand name, styling, and packaging.
Literally every product contains these components to a greater or lesser degree. In addition, the
importance of each will vary across products, situations, and individuals. For example, for Mr.

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Smith at age 25, the selection of a particular brand of new automobile (core product
=transportation) was based on tangible elements such as styling and brand name (choice
=Corvette); at age 45, the core product remains the same, while the tangible components such as
quality level and features become important (choice = Mercedes).

At the next level lies the augmented product. Every product is backed up by a host of supporting
services. Often, the buyer expects these services and would reject the coretangible product if they
were not available. Examples would be restrooms and escalators/elevators in the case of a
department store, and warranties and return policies in the case of a lawn mower. Dow Chemical
has earned a reputation as a company that will bend over backwards in order to service an
account. It means that a Dow sales representative will visit a troubled farmer after-hours in order
to solve a serious problem. This extra service is an integral part of the augmented product and a
key to their success. In a world with many strong competitors and few unique products, the role
of the augmented product is clearly increasing.

The outer ring of the product is referred to as the promised product. Every product has an
implied promise. An implied promise is a characteristic that is attached to the product over time.
The car industry rates brands by their trade-in value. There is no definite promise that a
Mercedes-Benz holds its value better than a BMW. There will always be exceptions. How many
parents have installed a swimming pool based on the implied promise that their two teenagers
will stay home more, or that they will entertain friends more often.

Having discussed the components of a product, it is now relevant to examine ways of classifying
products in order to facilitate the design of appropriate product strategies.

4.1.2 CLASSIFICATION OF PRODUCTS

It should be apparent that the process of developing successful marketing programs for
individual products is extremely difficult. In response to this difficulty, a variety of classification
systems have evolved that, hopefully, suggest appropriate strategies. The two most common
classifications are: (I) consumer goods versus industrial goods, and (2) goods products (i.e.
durables and nondurables) versus service products.

Consumer Goods and Industrial Goods

The traditional classification of products is to dichotomize all products as being either consumer
goods or industrial goods. When we purchase products for our own consumption or that of our
family with no intention of selling these products to others, we are referring to consumer goods.
Conversely, industrial goods are purchased by an individual or organization in order to modify
them or simply distribute them to the ultimate consumer in order to make a profit or meet some
other objective.

Classification of Consumer Goods

A classification used in marketing separates products targeted at consumers into three groups:
convenience, shopping, and specialty. A convenience good is one that requires a minimum
amount of effort on the part of the consumer. Extensive distribution is the primary marketing
strategy. The product must be available in every conceivable outlet and must be easily accessible

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in these outlets. Vending machines typically dispense convenience goods, as do automatic teller
machines. These products are usually of low unit value, they are highly standardized, and
frequently they are nationally advertised. Yet, the key is to convince resellers, i.e., wholesalers
and retailers, to carry the product. If the product is not available when, where, and in a form
desirable by the consumer, the convenience product will fail.

From the consumer's perspective, little time, planning, or effort is required to go into buying
convenience goods. Consequently, entrepreneurs must establish a high level of brand awareness
and recognition. This is accomplished through extensive mass advertising, sales promotion
devices such as coupons and point-of-purchase displays, and effective packaging. The fact that
many of our product purchases are often on impulse is evidence that these strategies work.
Availability is also important. Consumers have come to expect a wide spectrum of products to be
conveniently located at their local supermarkets, ranging from packaged goods used daily, e.g.,
bread and soft drinks, to products purchased rarely or in an emergency such as snow shovels,
carpet cleaners, and flowers.

In contrast, consumers want to be able to compare products categorized as shopping goods.

Automobiles, appliances, furniture, and homes are in this group. Shoppers are willing to go to
some lengths to compare values, and therefore these goods need not be distributed so widely.
Although many shopping goods are nationally advertised, often it is the ability of the retailer to
differentiate itself that creates the sale. The differentiation could be equated with a strong brand
name, such as Sears Roebuck or Marshall Field; effective merchandising; aggressive personal
selling; or the availability of credit. Discounting, or promotional price-cutting, is a characteristic
of many shopping goods because of retailers' desire to provide attractive shopping values. In the
end, product turn-over is slower and retailers have a great deal of their capital tied-up in
inventory. This combined with the necessity to price discount and provide exceptional service
means that retailers expect strong support from manufacturers with shopping goods.

Specialty goods represent the third product classification. From the consumer's perspective, these
products are so unique that they will go to any lengths to seek out and purchase them. Almost
without exception, price is not a principle factor affecting the sales of specialty goods. Although
these products may be custom-made (e.g., a hairpiece) or oneof-a-kind (e.g. , a statue), it is also
possible that the marketer has been very successful in differentiating the product in the mind of
the consumer. Crisco shortening, for instance, may be considered to be a unique product in the
mind of a consumer and the consumer would pay any price for it. Such a consumer would not
accept a substitute and would be willing to go to another store or put off their pie baking until the
product arrives. Another example might be the strong attachment some people feel toward a
particular hair stylist or barber. A person may wait a long time for that individual and might even
move with that person to another hair salon. It is generally desirable for an entrepreneur to lift
her product from the shopping to the specialty class (and keep it there). With the exception of
price-cutting, the entire range of marketing activities are required to accomplish this goal.

Classification of Industrial Goods

Consumer goods are characterized as products that are aimed at and purchased by the ultimate
consumer. Although consumer products are more familiar, industrial goods represent a very

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important product category, and in the case of some manufacturers, they are the only product
sold.
Industrial products can either be categorized from the perspective of the producer and how they
shop for the product, or the perspective of the manufacturer and how they are produced and how
much they cost. The latter criteria offers a more insightful classification for industrial products.

Farms, forests, mines, and quarries provide extractive products to producers. Although there are
some farm products that are ready for consumption when they leave the farm, most farm and
other extractive products require some processing before purchased by the consumer. A useful
way to divide extractive products is into farm products and natural products, since they are
marketed in slightly different ways.

Manufactured products are those that have undergone some processing. The demands for
manufactured industrial goods are usually derived from the demands for ultimate consumer
goods. There are a number of specific types of manufactured industrial goods.

Semi-manufactured goods are raw materials that have received some processing but require
some more before they are useful to the purchaser. Lumber and crude oil are examples of these
types of products. Since these products tend to be standardized, there is a strong emphasis on
price and vendor reliability.

Parts are manufactured items that are ready to be incorporated into other products. For instance,
the motors that go into lawn mowers and steering wheels on new cars are carefully assembled
when they arrive at the manufacturing plant. Since products such as these are usually ordered
well in advance and in large quantities, price and service are the two most important marketing
considerations.

Process machinery (sometimes called "installations") refers to major pieces of equipment used
in the manufacture of other goods. This category would include the physical plant (boilers,
lathes, blast furnaces, elevators, and conveyor systems). The marketing process would
incorporate the efforts of a professional sales force, supported by engineers and technicians, and
a tremendous amount of personalized service.

Equipment is made up of portable factory equipment (e.g., forklift trucks, fire extinguisher) and
office equipment (e.g ., computers, copier machines). Although these products do not contribute
directly to the physical product, they do aid in the production process. These products may be
sold directly from the manufacturer to the user, or a middleman can be used in geographically
dispersed markets. The marketing strategy employs a wide range of activities, including product
quality and features, price, service, vendor deals, and promotion.

Supplies and service do not enter the finished product at all, but are nevertheless consumed in
conjunction with making the product. Supplies would include paper, pencils, fuel oil, brooms,
soap, and so forth. These products are normally purchased as convenience products with a
minimum of effort and evaluation. Business services include maintenance (e,g., office cleaning),
repairs (e.g. plumbing), and advisory (e.g. legal). Because the need for services tends to be
unpredictable, they are often contracted for a relatively long period of time.

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Goods Versus Services

Suggesting that there are substantial differences between goods products and service products
has been the source of great debate in marketing. Opponents of the division propose that
"products are products" and just because there are some characteristics associated with service
products and not goods products and vice-versa, does not mean customized strategies are
generally necessary for each. Advocates provide evidence that these differences are significant. It
is the position in this course that service products are different than goods products, and that
service products represent an immense market sector.

Service products are reflected by a wide variety of industries: utilities, barbers, travel agencies,
health spas, consulting firms, medical care and banking, to name but a few, and they account for
nearly 50% of the average consumer's total expenditures, 70% of the jobs, and two-thirds of the
G.N.P. Clearly, the service sector is large and is growing. While all products share certain
common facets, service products tend to differ from goods products in a number of ways.

Characteristics of Service Products

Like goods products, service products are quite heterogeneous. Nevertheless, there are several
characteristics that are generalized to service products.

Intangible: As noted by Berry, "a good is an object, a device, a thing; a service is a deed, a
performance, an effort." With the purchase of a good you have something that can be seen,
touched, tasted, worn or displayed; this is not true with a service. Although you pay your money
and consume the service, there is nothing tangible to show for it. For example, if you attend a
professional football game, you spend $19.50 for a ticket and spend nearly three hours taking in
the entertainment.

Simultaneous Production and Consumption: Service products are characterized as those that
are being consumed at the same time they are being produced. The tourist attraction is producing
entertainment or pleasure at the same time it is being consumed. In contrast, goods products are
produced, stored, and then consumed. A result of this characteristic is that the provider of the
service is often present when consumption takes place. Dentists, doctors, hair stylists, and ballet
dancers are all present when the product is used.

Little Standardization: Because service products are so closely related to the people providing
the service, ensuring the same level of satisfaction from time to time is quite difficult. Dentists
have their bad days, not every baseball game is exciting, and the second vacation to Disney
World may not be as wonderful as the first.

High Buyer Involvement: With many service products, the purchaser may provide a great deal
of input into the final form of the product. For example, if you wanted to take a Caribbean cruise,
a good travel agent would give you a large selection of brochures and pamphlets describing the
various cruise locations, options provided in terms of cabin location and size, islands visited,
food, entertainment, prices, and whether they are set up for children. Although the task may be
quite arduous, an individual can literally design every moment of the vacation.

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It should be noted that these four characteristics associated with service products vary in
intensity from product to product. In fact, service products are best viewed as being on a
continuum in respect to these four characteristics.

While this discussion implies that service products are marketed differently than goods products,
it is important to remember that all products, whether they are goods, services, blankets, diapers,
or plate glass, possess peculiarities that require adjustments in the marketing effort. However,
"pure" goods products and "pure" service products (i.e., those on the extreme ends of the
continuum) tend to reflect characteristics and responses from customers that suggest opposite
marketing strategies. Admittedly, offering an exceptional product at the right price, through the
most accessible channels, promoted extensively and accurately, should work for any type of
product. The goods/services classification provides the same useful insights provided by the
consumer/industrial classification discussed earlier.

4.2 PRODUCT DEVELOPMENT PROCESSS

Evidence suggests that there may be as many varieties of new product development systems as
there are kinds of companies. For the most part, most companies do have a formal
comprehensive new product development system, and the evolution of such systems were not
necessarily the result of systematic planning. Because of the complexity of the process, it is
important that the general guidelines of effective management be applied to new product
development.

Before starting our discussion of the eight-step process of new product development, a necessary
caveat should be considered: a great many new products fail. Depending on definitions used for
products actually introduced, failure rates range between 20 percent and 30 percent, but have
been as high as 80 percent. Of more concern than the level of failure are the reasons for failure.
Possibilities include: technical problems, bad timing, misunderstanding the consumer, actions by
competitors, and misunderstanding the environment.

Step 1: Generating New Product Ideas

Generating new product ideas is a creative task that requires a specific way of thinking.
Gathering ideas is easy, but generating good ideas is another story. Examples of internal sources
are:-
1. Basic research: many companies, such as DuPont, have several scientists who are
assigned the task of developing new product ideas and related technology.
2. Manufacturing: people who manufacture products often have ideas about
modifications and improvements, as well as completely new concepts.

3. Salesperson: company salespeople and representatives can be a most helpful source

of ideas, since they not only know the customer best, but they also know the compe-
tition and the relative strengths and weaknesses of existing products.

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4. Top management: the good top executive knows the company' s needs and resources,
and is a keen observer of technological trends and of competitive activity.
External sources of new product ideas are almost too numerous to mention. A few of the more
useful are:

1. Secondary sources of information: there are published lists of new products, available
licenses, and ideas for new product ventures.
2. Competitors: good inferences about competitive product development can be made
on the basis of indirect evidence gained from salespeople and from other external
sources, including suppliers, resellers, and customers.

3. Customers: frequently customers generate new product ideas, or at least relay infor
mation regarding their problems that new and improved products would help to solve.

4. Resellers: a number of firms use "councils" or committees made up of representative

resellers to assist in solving various problems, including product development.

5. Foreign markets: many companies look toward foreign markets, especially Western
Europe and other developed countries, because they have been so active in product
development.

There are probably as many approaches to collecting new product ideas as there are sources.
For most companies, taking a number of approaches is preferable to a single approach. Still,
coming up with viable new product ideas is rare.

Step 2: Screening Product Development Ideas

The second step in the product development process is screening. It is a critical part of the
development activity. Product ideas that do not meet the organization's objectives should be
rejected. If a poor product idea is allowed to pass the screening state, it wastes effort and money
in subsequent stages until it is later abandoned. Even more serious is the possibility of screening
out a worthwhile idea.

There are two common techniques for screening new product ideas; both involve the comparison
of a potential product idea against criteria of acceptable new products. The first technique is a
simple checklist. For example, new product ideas can be rated on a scale ranging from very good
to poor, in respect to criteria such as: value added, sales volume, patent protection, affect on
present products, and so forth. Unfortunately, it is quite difficult for raters to define what is fair
or poor. Also, it does not address the issue of the time and expense associated with each idea, nor
does it instruct with regard to the scores. A second technique goes beyond the first: the criteria
are assigned importance weights and then the products are rated on a point scale measuring
product compatibility. These scores are then multiplied by their respective weights and added to
yield a total score for the new product idea.

Step 3: Business Analysis

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After the various product ideas survive their initial screen, very few viable proposals will remain.
Before the development of prototypes can be decided upon, however, a further evaluation will be
conducted to gather additional information on these remaining ideas in order to justify the
enormous costs required. The focus of the business analysis is primarily on profits, but other
considerations such as social responsibilities may also be involved.

The first step in the business analysis is to examine the projected demand. This would include
two major sources of revenue: the sales of the product and the sales or license of the technology
developed for or generated as a by-product of the given product.

A complete cost appraisal is also necessary as part of the business analysis. It is difficult to
anticipate all the costs that will be involved in product development, but the following cost items
are typical:-
 Expected development costs, including both technical and marketing R&D
 Expected set-up costs (production, equipment, distribution)
 Operating costs that account for possible economies of scale and learning curves
 Marketing costs, especia1ly promotion and distribution
 Management cost.

Step 4: Technical and Marketing Development

A product that has passed the screen and business analysis stages is ready for technical and
marketing development. Technical development involves two steps. The first is the applied
laboratory research required to develop exact product specifications. The goal of this research is
to construct a prototype model of the product that can be subjected to further study. Once the
prototype has been created, manufacturing-methods research can be undertaken to plan the best
way of making the product in commercial quantities under normal manufacturing conditions.
This is an extremely important step, because there is a significant distinction between what an
engineer can assemble in a laboratory and what a factory worker can produce.

While the laboratory technicians are working on the prototype, the marketing department is
responsible for testing the new product with its intended consumers and developing the other
elements of the marketing mix. The testing process usually begins with the concept test. The
product concept is a synthesis or a description of a product idea that reflects the core element of
the proposed product. For example, a consumer group might be assembled and the interview
session might begin with the question: "How about something that would do this?."

The second aspect of market development involves consumer testing of the product idea. This
activity must usually await the construction of tile prototype or, preferably, limited-ran
production models. Various kinds of consumer preference can be conducted. The product itself
can be exposed to consumer taste or use tests. Packaging, labeling, and other elements in the mix
can be similarly studied. Comparison tests are also used.

Step 5: Manufacturing Planning

Assuming that the product has cleared the technical and marketing development stage, the
manufacturing department is asked to prepare plans for producing it. The plan begins with an

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appraisal of the existing production plant and the necessary tooling required to achieve the most
economical production. Fancy designs and material might be hard if not impossible to
accommodate on existing production equipment; new machinery is often time-consuming and
costly to obtain. Compromise between attractiveness and economy is often necessary.

Finally, manufacturing planning must consider the other areas of the organization and what is
required of each. More specifically, they should determine how to secure the availability of
required funds, facilities, and personnel at the intended time, as well as the methods of
coordinating this effort.

Step 6: Marketing Planning

It is at this point that the marketing department moves into action again. The product planner
must prepare a complete marketing plan-one that starts with a statement of objectives and ends
with the fusion of product, distribution, promotion, and pricing into an integrated program of
marketing action.

Step 7: Test Marketing

Test marketing is the final step before commercialization; the objective is to test all the
variability’s in the marketing plan including elements of the product. Test marketing represents
an actual launching of the total marketing program. But it is done on a limited basis.

Three general questions can be answered through test marketing. First, the overall workability of
the marketing plan can be assessed. Second, alternative allocations of the budget can be
evaluated. Third, determining whether a new product introduction is inspiring users to switch
from their previous brands to the new one and holding them there through subsequent repeat
purchases is determined. In the end, the test market should include an estimate of sales, market
share, and financial performance over the life of the product.

Initial product testing and test marketing are not the same. Product testing is totally initiated by
the producer: he selects the sample of people, provides the consumer with the test product, and
offers the consumer some sort of incentive to participate.

Test marketing, on the other hand, is distinguished by the fact that the test cities are to represent
the national market, the consumer must make the decision herself, must pay her money, and the
test product must compete with the existing products in the actual marketing environment. For
these and other reasons a market test is an accurate simulation of the national market and serves
as a method for reducing risk. It should enhance the new product's probability of success and
allow for final adjustment in the marketing mix before the product is introduced on a large scale.

However, running a test marketing is not without inherent risks. First, there are substantial costs
in buying the necessary plant and machinery needed to manufacture the product or locating
manufacturers willing to make limited runs. There are also promotional costs, particularly
advertising and personal selling. Although not always easy to identify, there are indirect costs as
well. For example, the money used to test market could be used for other activities. The risk of
losing consumer goodwill through the testing of an inferior product is also very real. Finally,

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engaging in a test-market might allow competitors to become aware of the new product and
quickly copy it.

Because of the special expertise needed to conduct test markets and the associated expenses,
most manufacturers employ independent marketing research agencies with highly trained project
directors, statisticians, psychologists, and field supervisors. Such a firm would assist the product
manager in making the remaining test market decisions.
1. Duration of testing: the product should be tested long enough to account for market
factors to even out, allow for repeat purchases, and account for deficiencies in any
other elements in the new product (three to six months of testing may be sufficient for
a frequently purchased and rapidly consumed convenience item).
2. Selection of test market cities: the test market cities should reflect the norms for the
new product in such areas as advertising, competition, distribution system, and
product usage.

3. Number of test cities: should be based on the number of variations considered (i.e.,
vary price, package, or promotion), representativeness, and cost.

4. Sample size determination: the number of stores used should be adequate to represent
the total market.

Even after all the test results are in, adjustments in the product are still made. Additional testing
may be required, or the product may be deleted.

Step 8: Commercialization
At last the product is ready to go. It has survived the development process and it is now on the
way to commercial success. How can it be guided to that marketing success? It is the purpose of
the lifecycle marketing plan to answer this question. Such a complete marketing program will, of
course, involve additional decisions about distribution, promotion, and pricing.

4.3 PRODUCT PROTECTION

Entrepreneurs excel at coming up with innovative ideas for creative products and services. Many
entrepreneurs build businesses around intellectual property, products and services that are the
result of the creative process and have commercial value. New methods that are capable of
teaching foreign languages at an accelerated pace, hit songs with which we can sing along, books
that bring a smile, and new drugs that fight diseases are just some of the ways intellectual
property makes our lives better or more enjoyable.

Unfortunately, thieves are escalating their efforts to steal intellectual property by selling
counterfeit merchandise. The problem extends far beyond pirated software, fake shoes and
handbags, and knockoffs of expensive watches or the latest styles of designer clothing.
Authorities have discovered pirates selling counterfeit helicopter, airplane, and auto parts;
prescription medications; and many other products. The U.S. Justice Department recently seized
82 Web sites, 70 of them located in China, for selling counterfeit goods supposedly from

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companies such as Coach, Disney, Oakley, Louis Vuitton, Nike, and others to unsuspecting
consumers.

Entrepreneurs can protect their intellectual property from unauthorized use with the help of three
important tools: patents, trademarks, and copyrights.

Patents
A patent is a grant from the responsible government office to the inventor of a product, giving
the exclusive right to make, use, or sell the invention. For example, the US government issues a
patent to an inventor with right to make, use, or sell the invention in the country for 20 years
from the date of filing the patent application. The purpose of giving an inventor a 20-year
monopoly over a product is to stimulate creativity and innovation. After 20 years, the patent
expires and cannot be renewed. Most patents are granted for new product inventions, but design
patents, issued for 3.5, 7, or 14 years beyond the date the patent is issued, are given to inventors
who make new, original, and ornamental changes in the design of existing products that enhance
their sales. Inventors who develop a new plant can obtain a plant patent (issued for 7 years),
provided they can reproduce the plant asexually (e.g., by grafting or cross-breeding rather than
planting seeds). To be patented, a device must be new (but not necessarily better), not obvious to
a person of ordinary skill or knowledge in the related field, and useful. An inventor cannot patent
a device if it has been publicized in print anywhere in the world or if it has been used or offered
for sale in the country prior to the date of the patent application. A patent is granted only to the
true inventor, not to a person who discovers another’s invention. No one can copy or sell a
patented invention without getting a license from its creator. A patent does not give one the right
to make, use, or sell an invention, but rather the right to exclude others from making, using, or
selling it.

To receive a patent, an inventor must follow these steps:

Establish the invention’s novelty. An invention is not patentable if it is known or has been used
or has been described in a printed publication in a country or a foreign country.
Document the device. To protect a patent claim, inventors should be able to verify the date on
which they first conceived the idea for their invention. Inventors can document a device by
keeping dated records (including drawings) of their progress on the invention and by having
knowledgeable friends witness these records.
Search existing patents. To verify that the invention truly is new, non obvious, and useful,
inventors must conduct a search of existing patents on similar products. The purpose of the
search is to determine whether the inventor has a chance of getting a patent. Most inventors hire
professionals trained in conducting patent searches to perform the research. Inventors themselves
can also conduct an online search of all patents granted by the respective government body.
Study search results. Once the patent search is finished, inventors must study the results of the
search to determine their chances of getting a patent. To be patentable, a device must be
sufficiently different from what has been used or described before and must not be obvious to a
person having ordinary skill in the area of technology related to the invention.

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Submit the patent application. An inventor must file an application describing the invention. This
description, called the patent’s claims, should be broad enough so that others cannot easily
engineer around the patent, rendering it useless. However, they cannot be so narrow as to
infringe on patents that other inventors already hold. The typical patent application runs 20 to 40
pages, although some, especially those for biotech or high-tech products, are tens of thousands of
pages long.
Prosecute the patent application. Before the issuance of a patent, examiners study the
application to determine whether the invention warrants a patent. If the application rejected, the
inventor can amend the application and resubmit it. For example, in the US the average time for
a patent to be issued is 35 months, and as the backlog of patent applications grows ever larger the
average time will double within 5 years.

Defending a patent against “copycat producers” can be expensive and time-consuming, but it
often is necessary to protect an entrepreneur’s idea. Patent lawsuits are on the rise; the number
filed annually has more than tripled since the early 1980s. Unfortunately, the cost of defending
a patent has increased as well; the average cost of a patent infringement case is about $2 million
for each side. However, the odds of winning are in the patent holder’s favor; more than 60
percent of those holding patents win their infringement suits.

Trademarks
A trademark is any distinctive word, phrase, symbol, design, name, logo, slogan, or trade dress
that a company uses to identify the origin of a product or to distinguish it from other goods on
the market. (A service mark is the same as a trademark except that it identifies and distinguishes
the source of a service rather than a product.) A trademark serves as a company’s “signature” in
the marketplace. A trademark can be more than just a company’s logo, slogan, or brand name; it
can also include symbols, shapes, colors, smells, or sounds. For instance, Coca-Cola holds a
trademark on the shape of its bottle, and NBC owns a trademark on its three-toned chime.
Components of a product’s identity such as these are part of its trade dress, the unique
combination of elements that a company uses to create a product’s image and to promote it. For
instance, a company’s particular décor, color schemes, design, and overall “look and feel”
comprise its trade dress. To be eligible for trademark protection, trade dress must be inherently
unique and distinctive to a company, and another company’s use of that trade dress must be
likely to confuse customers.

Before 1989, a business could not reserve a trademark in advance of use. Today, the first party
that either uses a trademark in commerce or files an application with the responsible government
office has the ultimate right to register that trademark. In the US, it takes approximately 11
months to process a trademark application. Unlike patents and copyrights, which are issued for
limited amounts of time, trademarks last indefinitely as long as the holder continues to use it.
However, a trademark cannot keep competitors from producing the same product and selling it
under a different name. It merely prevents others from using the same or confusingly similar
trademark for the same or similar products.

Many business owners are confused by the use of the symbols ™ and ®. Anyone who claims the
right to a particular trademark (or servicemark) can use the ™ (or SM) symbols without having to

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register the mark with the responsible government office. The claim to that trademark or
servicemark may or may not be valid, however. Only those businesses that have registered their
marks can use the ® symbol. Entrepreneurs do not have to register trademarks or servicemarks to
establish their rights to those marks; however, registering a mark with does give entrepreneurs
greater power to protect their marks. Filing an application to register a trademark or servicemark
is relatively easy, but it does require a search of existing names.

An entrepreneur may lose the exclusive right to a trademark if it loses its unique character and
becomes a generic name or if the company abandons its trademark by failing to market the brand
adequately. Aspirin, escalator, thermos, brassiere, superglue, yo-yo, and cellophane all were
once enforceable trademarks that have become common words in the English language. These
generic terms can no longer be licensed as a company’s trademark.

Copyrights
A copyright is an exclusive right that protects the creators of original works of authorship, such
as literary, dramatic, musical, and artistic works (e.g., art, sculptures, literature, software, music,
videos, video games, choreography, motion pictures, recordings, and others). The internationally
recognized symbol © denotes a copyrighted work. A copyright protects only the form in which
an idea is expressed, not the idea itself. A copyright on a creative work comes into existence the
moment its creator puts that work into a tangible form. Just as with a trademark, obtaining basic
copyright protection does not require registering the creative work; doing so, however, gives
creators greater protection over their work. A valid copyright on a work lasts for the life of the
creator plus 70 years after his or her death. (A copyright lasts 75 to 100 years if the copyright
holder is a business.) When a copyright expires, the work becomes public property and can be
used by anyone free of charge.

Because they are easy to duplicate, computer software, CDs, and DVDs are among the most
often-pirated items by copyright infringers. Copyright piracy, for example, costs U.S. companies
an estimated $58 billion a year in lost sales. The software and music industries alone lose $15.4
billion annually to pirates.

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