CHAPTER FOUR

PRODUCT AND SERVICE CONCEPT

4.1 What is a product?
Many people think that a product is tangible offering, but a product can be more than that. In
marketing context a product can be defined as anything that can be offered to market for
acquisition, attention, and uses or consumption that might satisfy need or want. Or it is anything
tangible or intangible that can be offered to the market. Products that can be marketed include
physical goods, services, experiences, events, persons, places, properties, organizations,
information, and ideas. Consumers tend to see products as a complex bundle of benefits that
satisfy their needs.

4.1.1 Product Concepts (Levels of a product)

To plan a successful product strategy, managers must know what their product is. A product is
like an onion. It has several skins, or layers each of which contributes to the total product image.
In addressing its marketing offering, the marketers need to address three product levels. Each
level adds more customer value. The figure above (fig.4.1) shows some of the important levels
of a product.

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FIG 4.1 Levels of a product

1. Core product:
This addresses the question what customers really purchase. It stands at the center of total
product. It provides benefits for the customers or helps customers’ to solve their problem.
Therefore, the product planner (marketer) should first define the core benefits the product will
provide to customer. Product planner need to think about the three levels. The most basic level is
the core product, which addresses the question: what the buyer is really buying? As the figure
illustrates, the core product stands at the center of the total product. It consists of problem
solving services or core benefits that consumers seek when they buy a product. A woman buying
Lipstick buys more than lip color.
2. Actual product:
The product planner must next build an actual product around the core product. This is based up
on the core benefit or core level of the product. Actual product contains package, brand name,
quality level, feature and design. For example, Cmon’sNickons Rs’ is an actual product. Its

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name, parts, styling, features, packaging, and other attributes have all been combined carefully
to deliver core benefits- a convenient, high quality way to capture important moments.
3. Augmented product:
Additional consumer services and benefits built based on the core and actual product or it is
something that exceeds customer expectations. Differentiation arises on the basis of product
augmentation. Product augmentation leads the marketer to look at the user’s total consumption
system; the way the user performs the tasks of getting, using the products and related services. It
includes service and benefits such as training how to operate, warranty, credit, transportation on
service, repair service and others. Today, most competition takes place at the product
augmentation level. Successful, companies add benefits to their offers that only will satisfy, but
also will delight consumers.
When developing products, marketers first must identify the core consumer needs the product
will satisfy. They must then design the actual product and find ways to augment it in order to
create the bundle of benefits that will best satisfy consumers. For example, take a merchandise
car, from this; transportation service is core product, the car itself is actual product, and after
sale services like, warranty, installation, and repair and maintenances could be considered as an
augmented part of the product (the car).

4.2. Product development Processes

Product development (PD) is the term used to describe the complete process of bringing a new
product or service to market. There are two parallel paths involved in the PD process: one
involves the idea generation, product design and detail engineering; the other involves market
research and market analysis. Companies typically see new product development as the first

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stage in generating and commercializing new products within the overall strategic process of
product life cycle management used to maintain or grow their market share.

Fig. 4.2. New product development steps

1. New product strategy

Effective product innovation is guided by a well-defined new-product strategy. The new

product strategy achieves four main goals: first, it gives direction to the new-product
team where to focuses its effort-,second, it helps to integrate functional or departmental
efforts; third, it allows tasks to be delegated to team members, who can be left to operate
independently and fourth, the very act of producing and getting managers to agree on
strategy requires proactive, not reactive, management, which increases the likelihood of a
more thorough search for innovation opportunities

2. Idea Generation: Idea generation should be systematic rather than haphazard.

Otherwise, although the company will find many ideas, most will not be good ones for its
type of business. A company typically has to generate many ideas in order to find a few

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 good. To obtain a flow of new-product ideas, the company can tap many sources. Chief
sources of new-product ideas include internal sources, customers, competitors,
distributors and suppliers.

3. Idea Screening

The purpose of idea generation is to create a large number of ideas. The purpose of the
succeeding stages is to reduce that number to a manageable few which deserve further attention.
The first idea-reducing stage is idea screening. The purpose of screening is to spot good ideas
and drop poor ones as soon as possible. As product development costs rise greatly in later stages,
it is important for the company to go ahead only with those product ideas that will turn into
profitable.
Ideas can be screened further using a simple rating process

4. Concept development and Testing

Attractive ideas must now be developed into product concepts. It is important to distinguish
between a produce idea, a product concept and a product image. A product idea is an idea for a
possible product that the company can see itself offering to the market. A product concept is a
detailed version of the idea stated in meaningful consumer terms. A product image is the way
consumers perceive an actual or potential product.

 Concept Development
Suppose a car manufacturer figures out how to design an electric car that can go as fast as 90
km per hour and as far as 170 km before needing to be recharged.
The manufacturer estimates that the electric car's operating costs will be about half of a regular
car. This is a product idea. Customers, however, do not buy a product idea; they buy a product
concept. The marketer's task is to develop this idea into some alternative product concepts, find
out how attractive each concept is to customers, and choose the best one.
The marketer might create the following product concepts for the electric car.
 Concept-1 , A moderately priced subcompact designed as a second family car to
be used around town.
 Concept -2: A medium-cost sporty compact appealing to young people.
 Concept 3 An inexpensive subcompact 'green' car appealing to environmentally
conscious people who want practical transportation and low pollution.
To increase the likelihood of concept acceptance, some firms involve the customer (or
potential customer) in concept development.

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  Concept Testing
Concept testing calls for testing new-product concepts with a group of target consumers.
The concepts may be presented to consumers symbolically or physically. Here, in words,
for Concept 3:
o An efficient, fun-to-drive, fuel-cell-powered electric subcompact car that seats
four. This high-tech wonder runs on hydrogen created from methanol fuel,
providing practical and reliable transportation with almost no pollution. It goes up
to 110 km per hour and, unlike battery-powered electric cars, never needs
recharging. It's priced, fully equipped, at £32.000.
For some concept tests, a word or picture description might be sufficient. However, a more
concrete and physical presentation of the concept will increase the reliability of the concept test.
After being exposed to the concept, consumers may then be asked to react to it by answering the
questions:
1. Do you understand the concept of an electric car?
2. Do you believe the claims about the electric ear's performance?
3. What are the main benefits of the electric car compared with a conventional car?
4. What improvements in the car's features would you suggest?
5. For what uses would you prefer an electric car to a conventional ear?
6. What would be a reasonable price to charge for the electric car?
7. Who would be involved in your decision to buy such a car? Who would drive it?
8. Would you buy such a car? (Definitely, probably, probably not, definitely not)
The answers will help the company decide which concept has the strongest appeal.

5. Marketing Strategy Development

The next step is to develop a marketing strategy for introducing this car to the market.
Marketing strategy statement: A statement of the planned strategy for a new product that
outlines the intended target market, the planned product positioning, and the sales, market share
and profit goals for the first few years.
The marketing strategy statement consists of three parts. The first part describes the target
market, the planned product positioning, and the sales, market share and profit goals for the first
few years. The second part of the marketing strategy statement outlines the product's planned
price, distribution and marketing budget for the first year. The third part of the marketing
strategy statement describes the planned long-run sales, profit goals and marketing mix strategy.

6. Business Analysis
Business analysis involves a review of the sales, costs and profit projections for a new product to
find out whether they satisfy the company's objectives. If they do, the product can move to the
product development stage.

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To estimate sales, the company should look at the sales history of similar products and should
survey market opinion. The firm should estimate minimum and maximum sales to assess the
range of risk. After preparing the sales forecast, management can estimate the expected costs and
profits for the product, including marketing, R & I), manufacturing, accounting and finance
costs. The company then uses the sales and costs figures to analyze the new product's financial
attractiveness.

7. Product development
If the product concept passes the business test, it moves into product development. Here, R & D
or engineering develops the product concept into a physical product. The product development
step, however, now calls for a large jump in investment. It will show whether the product idea
can be turned into a workable product or not.

The R & D department will develop one or more physical versions of the product concept. R &
D hopes to design a prototype that will satisfy and excite consumers and that can be produced
quickly and at budgeted costs. The prototype must have the required functional features and also
convey the intended psychological characteristics.
When the prototypes are ready, they must be tested. Functional tests are then conducted under
laboratory and field conditions to make sure that the product performs safely and effectively.
When designing products, the company should look beyond simply creating products that satisfy
consumer needs and wants. Too often, companies design their new products without enough
concern for how the designs will be produced, The designs are then passed along to
manufacturing, where engineers must try to find the best ways to produce the product.
Companies may minimize production problems by adopting an approach towards product
development called design for manufacturability and assembly (DEMA). Using this approach,
companies work to fashion products that arc both satisfying and easy to manufacture. This often
results not only in lower costs, but also in higher-quality and more reliable products.
Consumer tests are conducted, in which consumers test-drive the car and rate its attribute.
o Produce a physical prototype or mock-up

o Test the product (and its packaging in typical usage situations)

o Conduct focus group customer interviews or introduce at trade show
o Make adjustments where necessary
o Produce an initial run of the product and sell it in a test market area to determine
customer acceptance

8. Test Marketing
If the product passes functional and consumer tests, the next step is test marketing, the stage at
which the product and marketing programs are introduced into more realistic market settings.

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Test marketing gives the marketer experience with marketing the product before going to the
great expense of full introduction.
It lets the company test the product and its entire marketing programs - positioning strategy,
advertising, distribution, pricing, branding and packaging, and budget levels - in real market
situations.
The company uses test marketing to learn how consumers and dealers will react to handling,
using and repurchasing the product. The results can be used to make better sales and profit
forecasts. Thus a good test market can provide a wealth of information about the potential
success of the product and marketing programmers.
The amount of test marketing needed varies with each new product. Test marketing costs can be
enormous and test marketing takes time that may allow competitors to gain advantages. When
the costs of developing and introducing the product arc low or when management is already
confident that the new product will succeed, the company may do little or no test marketing.
Companies often do not test market simple line extensions, minor modifications of current
products or copies of successful competitors' products. However, when the new-product
introduction requires a large investment, or when management is not sure of the product or
marketing program, the company may do a lot of test marketing.
Whether or not a company decides to test-market, and the amount of testing it does, depends on
the cost and risk of introducing the product on the one hand, and on the testing costs and time
pressures on the other. Although the costs of test marketing can be high, they are often small
when compared to the costs of making a major mistake
In principle, the idea of test marketing also applies to new service products

9. Commercialization

Test marketing gives management the information needed to make a final decision about
whether to launch the new product. If the company goes ahead with commercialization - that is,
introducing the new product into the market - it will face high costs. The company will have to
build or rent a manufacturing facility. It must have sufficient funds to gear up production to meet
demand. Failure to do so can leave an opening in the market for competitors to step in.

The company launching a new product must make four decisions:

[Link]-The first decision is introduction timing - whether the time is right to introduce the
new product. If it will eat into the sales of the company's other products, its introduction may be
delayed. If it can be improved further, or if the economy is down, the company may wait until
the following year to launch it.
2. Where-The company must decide where to launch the new product. Should it be in a single
location, or region, several regions, the national market or the international market? Few
companies have the confidence, capital and capacity to launch new products into full national or
international distribution. They will develop a planned market rollout over time. In particular,

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small companies may enter attractive cities or regions one at a time. Larger companies may
quickly introduce new products into several regions or into the national market.

[Link] whom-Within the roll-out markets, the company must target its distribution and promotion
to customer groups who represent the best prospects. These prime prospects should have been
profiled by the firm in earlier research and test marketing
[Link]-The company also must develop an action plan for introducing the new product into the
selected markets. It must spend the marketing budget on the marketing mix and various other
activitie

The Production and Product Concept

A. The Production Concept

The production concept is one of the oldest concepts in business. The production concept holds
that consumers will favor these products that are widely available and low in cost. Managers of
production-oriented organization concentrate on achieving high production efficiency and wide
distribution.
The assumption that consumers are primarily interested in product availability and low price
holds in at least two situations. The first is where the demand for a product exceeds supply, as in
many developing countries. Here consumers are more interested in obtaining the product, and
supplies will concentrate on finding ways to increase production.

The second situation is where the product’s cost is high and has to be decreased to expand the
market.
B. The Product Concept
Other business is guided by the product concept. The product concept holds that consumers will
favor those products that offer the most quality, performance or innovative features. Managers in
product oriented organization focus their energy on making superior products and improving
them over time.

Under the concept, mangers assume that buyers admire will made products and can appraise
product quality and performance. Product-oriented companies often design their products with
little or no customer input. They trust that their engineers will know how to design or improve
the product.

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 [Link] and Services
A product is anything that can be offered to a market for attention, acquisition, use, or
consumption that might satisfy a want or need. It includes physical objects, services, persons,
places, organizations and ideas.
Goods are physical objects. They are tangible and can be seen, touched, tested or felt, even
before actual purchase. Services are anything or benefit that one party can offer to another that is
essentially intangible and does not result in the ownership of anything. As can be seen goods and
services are different.
In many instances, services compete in the market place with goods that offer broadly similar
benefits. For instance, buying a service may be an alternative to doing it yourself. Similarly,
using a rental service is often an alternative to owing a good.
Generic Differences between Goods and Services
Seven generic differences tend to distinguish services from goods. These are:
i) Nature of the product. Leonard Berry describes a good as "an object, a device,
and a thing" in contrast to a service which is "a deed, a performance, an effort." Although
services often include tangible actions - such as sitting in an airline seat, eating a meal, or
getting damaged equipment repaired - the service performance itself is basically an
intangible. Like all performances, services are time bound and experiential, even though
they may have lasting consequences.
ii) Customer involvement in production. Performing a service involve assembling
and delivering the output of a mix of physical facilities and mental or physical labor.
Often customers are actively involved in helping to create the service products - either by
serving themselves or by cooperating with service personnel in settings such as hair
salons, hotels, colleges or hospitals.
iii) People as part of the product. In high-contact services, customers not only
come into contact with service personnel, they may also rub shoulders with other
customers. The difference between two service businesses often lies in the quality of
employees who deliver the service. Similarly, the type of customers who patronize a

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 particular service business helps to define the nature of the service experience. As such,
people become part of the product in many services.
iv) Quality control problems. Manufactured goods can be checked for conformity
with quality standards long before they reach the customer. But when services are
consumed as they are produced, final "assembly" must take place under real-time
conditions. As a result, mistakes and shortcomings are harder to control. Further
variability is introduced by the presence of service personnel and other customers.
v) None inventories for services. Because a service is a deed or performance
rather than a tangible item that the customer keeps, it cannot be inventoried.
vi) Importance of the time factor. Many services are delivered in real time.
Customers have to be present to receive service from organizations like: airlines,
hospitals, haircutters, restaurants, and many other similar organizations. There are limits
as to how long customers are willing to be kept waiting for service to be provided;
further, that service must be delivered quickly so that customers do not spend longer
receiving service than appears reasonable to them.
vii) Different distribution channels. Unlike manufacturing firms, which require
physical distribution channels for moving goods from factory to customers, service
businesses either use electronic channels (as in broadcasting or electronic funds transfer)
or else combine the service factory, retail outlet, and point of consumption into one.

Services possess four inherent characteristics not found in goods: intangibility, perishablity,
inseparable and variability. These characteristics create unique challenges for services. To attract
new customers and to keep current customers coming back, service firms must find ways to meet
these challenges.
A) Intangibility
It refers to the lack of tangible assets that can be seen, touched, smelled, heard, or tested prior to
purchase. Business-to-Business Example: A professional janitor service will have to rely on
what the janitor service tells them about the services to be performed.
B) Perishability
It means inability of a service to be inventoried or stored. Services cannot be inventoried, except
for the equipment and supplies necessary for their performance.

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C) Inseparability
Inseparability is the simultaneous production and consumption of services. Getting medical
services involves a doctor or a dentist performing an examination or procedure while the
customer is present. Because the service must be performed and/or consumed at the same time,
the quality of the service is highly dependent on the ability of the service provider and the quality
of interaction between the service provider and the customer.
D) Variability
Because they depend on who provides them and when and where they are provided, services are
highly variable. Variability refers to the sporadic or random levels of service quality customers
receive when they patronize a service. Variability is primarily caused by the human element,
although machines may malfunction causing a variation in the service.
Various service employees will perform the same service differently and even the same service
employees will provide varying levels of service from one time to another. For example, the hair
stylist uses different styles to different customers or different hairstylists use different styles to
the same customer.
Variability is also caused by a variance in the input. Computer consultants staffing hotlines face
the challenge of dealing with the variability of knowledge and expertise that customers bring to
the service process. The same would be true for attorneys handling legal situations for various
clients.
Because of the variability characteristics of services, standardization, or service that follows a
standard step of procedures and processes of all customers and quality control are more difficult.
Variability or inconsistencies, can be overcome by using quality control measures, increasing
customer satisfaction by having effective service systems in place, monitoring customer
satisfaction regularly, and managing the behavior of customers and employees in each service
encounter.
4.3. Product Protection
Most entrepreneurs will not be inventors, but all of them are concerned with protecting their
idea. When those ideas relate to new products, unusual processes, unique designs, or biological
innovations such as new plants, understanding patent law becomes paramount. When
entrepreneurs want to protect unusual brand names or establish ownership of intellectual
property, then understanding trademarks and copyrights is vital.

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Entrepreneurship has several dimensions and an entrepreneur is expected to know them
thoroughly. One such dimension is a legal dimension. Thus conforming to legal requirements
will be the first thing to start an enterprise. Any enterprise (i.e., sole proprietorship, partnership
or Joint Stock Company) has to be run within the legal framework doing business according to
commercial law, labor law, etc. of the country. Therefore, an entrepreneur should be aware of
such governmental legislation. Moreover, it is important if entrepreneurs have well fledged
information about the characteristics, advantages and disadvantages of the different types of
business organization.
4.3.1. Patent
A patent is a grant of property right by the government to an inventor. Anything that is
patentable must be new and useful

What can be patented? Process: - New method of manufacturing or new technological

procedures that can be validated as unique.
 Machine: - Products, instruments, machines and other physical objects that have proved
useful and unique.
 Manufacturers: - Refers to physical items that have been fabricated through new
combinations of materials or technical applications.
 Composition of Matter: - relates to chemical compounds, medicines... that do not exist in
nature in an uncultivated state.
There are different types of patents granted.
A utility patent is granted for new products, processes, machines, methods, of manufacturing,
and compositions of matter. This category excludes most botanical creations related to plant and
agricultural use. The utility patent is the most common patent sought by inventors. Similar
patents can be filed in more than 80 countries, and there are joint utility patent protection rights
that can be obtained for international regions such as the European Economic Community
(EEC).
Design patents are granted for any new or original ornamental design for an article of
manufacture. A design patent protects the appearance of the article, not the article itself. An
inventor could easily register both a utility patent and a design patent, but the design patent has a
limited life. Entrepreneurs can select the period of time for protection in order to commercialize

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designs and to realize the benefits of their ingenuity. The benefit of a design patent is that the
ornamental nature of the patent may be a distinguishing feature that allows an individual to have
exclusive use of visual imagery, thus enhancing sales or creating brand identification.
Plant Patents: In botanical terms, any new variety of plant that has been asexually reproduced
can be granted a plant patent. The new plant must not exist in nature or in an uncultivated state.
Therefore, new plants, mutants, hybrids, and seedlings may be patented, provided the inventor
can satisfy the patent office that the new plant did not evolve from nature.
4.3.2. Trade Mark
Trademark, any word or symbol used by manufacturers or sellers to identify their goods and
distinguish them from the goods of others. Trademarks help consumers to identify goods they
have used and enjoyed in the past. Trademarks also allow consumers to avoid goods and services
that they dislike.
4.3.3. Copyright
Copyright:
Copyright: branch of law granting authors the exclusive privilege to reproduce, distribute,
perform, or display their creative works.
Implications to Entrepreneurs

There are several excellent reasons why aspiring entrepreneurs should be well informed on
patents, trademarks, and copyrights. Aside from the obvious need to protect one's ideas, the
entrepreneurs must be careful not to infringe on others. Being familiar with regulations is also
important for designing packaging, writing advertisement and distributing materials. But
perhaps most important, obtaining property rights (patents, trademarks, or copyrights) create
valuable assets. Patents can be sold, licensed assigned, or leveraged as assets of new enterprise

The principal types of intellectual property are patents, copyrights, and trademarks. Patent law
protects inventions that demonstrate technological progress. Copyright law protects a variety of
literary and artistic works, including paintings, sculpture, prose, poetry, plays, musical
compositions, dances, photographs, motion pictures, radio and television programs, sound
recordings, and computer software programs. Trademark law protects words and symbols that
serve to identify different brands of goods and services in the marketplace.
Intellectual property differs from other forms of property because it is intangible, a product of the
human imagination. Because intellectual property is intangible, many people may use it
simultaneously without conflict. For example, only one person can drive a car at a time, but if an
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author publishes a book, many people can read the work at the same time. Intellectual property is
also much easier to copy than it is to create. . Most intellectual property rights expire after a
specified period. This permits the rest of society to benefit from the work after the creator has
had an opportunity to earn a fair reward.

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